Magnin v Creevey

1. [1]

   HIS HONOUR: By her statement of claim filed on 28 April 2016, Ann Magnin claims the sum of USD350,000 pursuant to the terms of a loan agreement with Ronald Creevey dated 22 January 2014.

2. [2]

   Although Mr Creevey formerly retained solicitors to act on his behalf in defence of Ms Magnin’s claim, those solicitors ceased to act for him on or about 14 March 2017. A notice of intention to file a notice of ceasing to act for Mr Creevey was filed by his solicitor on 7 March 2017. Mr Creevey was subsequently advised in correspondence from Ms Magnin’s solicitors that she intended to proceed at the hearing of the matter on 7 April 2017. Mr Creevey did not reply to that correspondence. There was no appearance by or on behalf of Mr Creevey when the matter was called before me on that day.

3. [3]

   Ms Magnin relies upon her affidavit sworn on 15 November 2016. I am satisfied that she advanced USD350,000 to Mr Creevey on or about 22 January 2014. I am also satisfied that Mr Creevey has failed to make any payment of interest on the loan and has failed to repay the principal sum in accordance with the terms of the loan agreement. The basis for that satisfaction is not limited to the evidence upon which Ms Magnin relies.

4. [4]

   In his defence filed on 17 August 2016, Mr Creevey admitted that he entered into the loan agreement with Ms Magnin and that he received the sum of USD350,000 on or about 23 January 2014. He also admits that he has not made any payment to Ms Magnin of any monies under the loan agreement. The defence contains no paragraph explaining why, at the very least, Mr Creevey is not liable to repay the principal sum having regard to the fact that the term of the loan has expired.

5. [5]

   However, in answer to the whole of the statement of claim Mr Creevey contends that clauses 1 and 3 of the loan agreement constitute a penalty. Clauses 1 to 3 inclusive are in the following terms:

6. [6]

   Mr Creevey filed no evidence in support of his defence.

A preliminary issue

1. [7]

   Clause 8 of the loan agreement is as follows:

2. [8]

   Putting aside the difficulty arising from the fact that the law relating to domestic contracts of loan in the United States of America is a matter for State law, and that there may be differences among the fifty States of that country that are relevant to the present dispute, the operation of foreign laws is a question of fact that is ordinarily proved by expert evidence (Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331; [2005] HCA 54 at [115]) or by the production of books or other materials in the manner contemplated by ss 174 and 175 of the Evidence Act 1995. No such evidence has been produced by either party in this case concerning the operation of the law of contract in general or the law relating to penalties in particular.

3. [9]

   In these circumstances there is a presumption that the law of the forum applies. In Neilson, Gummow and Hayne JJ at [116] referred to the “well known rule that, absent proof of, or agreement about, foreign law, the law of the forum is to be applied.” In those circumstances, the law of New South Wales should apply.

Consideration

1. [10]

   The obligation of establishing that a particular contractual clause constitutes a penalty rests upon the party asserting it: Arab Bank Australia Ltd v Sayde Developments Pty Ltd [2016] NSWCA 328 at [75] citing Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28 at [167]. Beyond the loosely pleaded contentions in Mr Creevey’s defence, no evidence or other elucidation of the contention has been provided. Mr Creevey has failed to discharge that onus.

2. [11]

   However, in my opinion it does not appear to matter. Clause 1 and clause 3, taken alone or together, do not constitute a penalty as that concept is properly understood. A penalty is in essence a collateral stipulation, the purpose, or the predominant purpose, of which is to punish the borrower for breach and thus to compel performance. Neither clause 1 nor clause 3 has that effect. Even if clause 3 could be construed in that way, Mr Creevey was obliged by clause 2 of the loan agreement to repay the whole of the principal sum within six months in any event. The obligation to repay the principal sum could not on any view be considered to be a penalty.

3. [12]

   Moreover, the obligation to pay interest under the loan agreement cannot properly be characterised as a collateral stipulation, the predominant purpose of which is to punish Mr Creevey for breach and thus compel performance. So much follows from the fact that interest under the loan agreement is levied at the same rate regardless of whether Mr Creevey complies with his obligations under the agreement.

Quantum

1. [13]

   Ms Magnin claims the principal sum together with interest from 22 July 2014 until 22 January 2017 in accordance with the following Schedule:

Costs

1. [14]

   Clause 9 of the loan agreement is in these terms:

2. [15]

   Ms Magnin is entitled to costs. Having regard to the terms of clause 9 of the loan agreement, she claims those costs on an indemnity basis. She proposes two bases for that claim.

3. [16]

   First, Ms Magnin submits that the phrase “complete legal costs incurred” in terms provides for or contemplates the payment of costs on an indemnity basis. I think that this submission has merit. But for the requirement to commence these proceedings, Ms Magnin would presumably have incurred no costs of the type to which clause 9 refers.

4. [17]

   Secondly, and in my view completely independently, Mr Creevey’s defence of the proceedings was, and is, wholly unmeritorious. Mr Creevey’s contention that either of the nominated clauses in the loan agreement amounted to a penalty is hopeless. It was amenable to summary disposition from the date of the filing of his defence. To the extent that Ms Magnin has incurred legal costs as the result of having to prosecute these proceedings on a defended basis, she is entitled to her costs on an indemnity basis for that reason as well.

Orders

1. [18]

   I make the following orders:

   1. (1)

      Judgment for the plaintiff for USD665,000.

   2. (2)

      Order the defendant to pay the plaintiff’s costs of and incidental to these proceedings on an indemnity basis.