Volonakis v Erceg (No 2)

HIS HONOUR: In this matter, I determined a claim made by the three Plaintiffs, or one or more of them, against the two Defendants, or one of them, for what was said to be the unpaid balance of two undocumented loans, the first of $375,000, made in November 2015, and the second of $100,000, made in April 2016, together with simple interest, calculated at the rate of 4 per cent per month, on the unpaid balances of each loan. The reasons for judgment bear the medium neutral citation Volonakis & Ors v Erceg & Anor [2019] NSWSC 1875 (the principal judgment).

The background to the dispute is set out in the principal judgment and will not be repeated in these reasons, other than where necessary. The essential findings were summarised at [286]. What follows assumes a general familiarity with those reasons. I shall continue to refer to the parties in the same way as I did in the principal judgment. Again, no disrespect or undue familiarity is intended.

Relevantly, the conclusions reached in the principal judgment, so far as they are relevant to the issues that remain, were:

The parties were unable to reach agreement on what amounts should be the subject of judgment against each of the parties. It is now necessary to determine these matters. The parties agreed that once these matters were determined, they should be able to provide agreed short minutes of order to reflect these reasons.

The issues that appeared to remain in dispute between Patricia and Michael, as lenders, and principally, Ivancica, as a borrower, or co-borrower, were:

Walter, apart from one matter, simply supported the submissions made on behalf of Ivancica.

In respect of the loan of $100,000, one of the findings made was that Patricia and Michael were the lenders and Walter was the sole borrower. Only Walter is liable to repay this loan and until he did, he was required to pay simple interest, calculated at the rate of 4 per cent per month payable monthly. Based upon the calculations advanced on behalf of Patricia and Michael, he had repaid the whole of this loan.

Before dealing with the issues raised, there was one paragraph in the principal judgment that was said to require correction. At [88] of the principal judgment, I wrote:

In fact, although not specifically referred to at the substantive hearing by either Mr Ireland QC on behalf of Ivancica, or by Mr Southwick, on behalf of Walter, there was some evidence as to a source of the amounts that were paid and referred to. Ex TB1/454 was a page of a statement of a joint bank account conducted in the names of Ivancica and Walter. That page revealed that amounts equal to the amounts paid to Patricia and Michael had been withdrawn, in cash, in and around the period referred to. However, there was no evidence that the amounts paid to Patricia and Michael were paid directly out of the joint bank account of Ivancica and Walter. The amount of $38,000 was withdrawn on 14 February 2017; $108,000 was withdrawn on 16 February 2017; and $54,000 was withdrawn on 17 February 2017.

I do not consider the passage referred to requires correction. However, for reasons to which I shall come, an amendment, even if made, would not change the substance of the paragraph.

I shall now deal with the issues identified by the parties

Both Walter and Ivancica submitted that the Court should treat the payment of $200,000, made in February 2017, as having been paid by Ivancica, or for her benefit, or jointly by her and Walter.

Ivancica also submitted that if it were treated as a payment made by her, or for her benefit, then any such payment, necessarily operated as a repayment, pro tanto, of the principal sum of $375,000 held to have been advanced to her and to Walter.

Mr Ireland QC accepted that “on the evidence, all payments made in the period between December 2015 and January 2017 were made by [Walter] and none of them was made by [Ivancica]”. However, he pointed to a bank statement, which formed part of the evidence at the hearing of the substantive proceedings, which showed that the amounts totalling $200,000 had come from a joint bank account held in the name of Walter and Ivancica: Revised Submissions on Quantum and Costs on behalf of the First Defendant at pars 4–5; Ex TB1/454.

Mr Ireland QC also sought to rely upon a bank statement relating to the joint bank account and the deposit into that joint account, on 30 January 2017, of $494,407.78: Ex TB1/454. He also tendered a copy of a settlement statement, relating to the sale of the Caringbah property, the sole registered proprietor of which was Ivancica, which showed that a cheque for $494,407.78 had been drawn in favour of Walter and Ivancica: Ex 1DQ2.

He submitted that the source of the funds used to make the payment of $200,000, was the proceeds of sale of the Caringbah property, with the consequence that it was her money that had been used, by Walter, to make the payment. It followed, so he submitted, that the payment of $200,000 should be treated as a reduction of the principal of $375,000 which was then, on the Court's findings, owed by Ivancica to Patricia and Michael without interest, and that the principal under the first loan had been reduced to $175,000 as at 22 February 2017.

Counsel for Walter relied upon the submissions made on behalf of Ivancica. He put the position slightly differently by submitting that Ivancica should receive the benefit of amounts paid out of the joint account, and in relation to another amount ($20,000) to which reference will be made, from a company of which she is the sole director and shareholder, as it was her money that had been used.

Patricia and Michael submitted that all payments were made by Walter only and that those payments, as found in the principal judgment, could be appropriated as they saw fit. In addition, they pointed to the following matters to demonstrate that the payment of $200,000 was not made by Ivancica or for her benefit:

I shall not repeat the matters relied upon by Patricia and Michael, which are certainly relevant, that have been set out above. The answer to the question is guided by the shape of the case as it was presented by Ivancica and Walter at the hearing. It was put that they should be bound to the case made at the substantive hearing and before.

As stated, Ivancica gave no evidence. Thus, there was no sworn evidence by her that she had made any of the repayments to Patricia and Michael, whereas Walter maintained, at all relevant times, that he had made all of the repayments. Indeed, as set out above, Ivancica had asserted in her defence that the payments had been made by Walter.

Reference should be made to the amended Cross-Claim, filed on 18 April 2019, by Walter. In par 2, he asserted:

Bearing in mind Walter had asserted that from about October 2015, he was the person who “had dealings with the Cross Defendant as referred to in the Defence by the Second Defendant to the Amended Statement of Claim”, such payments as were found as having been made must have been made to reduce his indebtedness, not any indebtedness of Ivancica: see amended Cross-Claim at par 1.

The principles that apply to pleadings were set out in Dare v Pulham (1982) 148 CLR 658 at 664 (Murphy, Wilson, Brennan, Deane and Dawson JJ); [1982] HCA 70:

There was no suggestion that the parties had chosen some issue different from those disclosed in the pleadings as the basis for the determination of their respective rights and liabilities.

In his final written submissions dated 6 November 2019, Mr Ireland QC, under the heading “Other Evidence exculpating Mrs Erceg”, wrote at par 35:

Under the heading “Claim that Mr Erceg acted as the agent of Mrs Erceg in borrowing the money”, Mr Ireland QC wrote at par 39:

Both Ivancica and Walter, prior to, and at, the hearing, had committed themselves, separately, to the forensic course of asserting that Walter had made all repayments as Ivancica did not have any obligation to do so. It would have been inconsistent with the case advanced by Ivancica for her to assert that any of the money paid to Patricia and Michael had been repaid by her, or for her benefit. Neither Ivancica nor Walter had asserted, by way of an alternative position, that if she were found to be liable for one, or both, debts, then payments made by Walter were made on her behalf.

However, that is not all. Mr Ireland QC did not ask Walter any questions on the use of money in the joint bank account, or suggest to him that it was not his money to use. Nor had Walter given evidence that he had used money to repay the debts that did not belong to him.

Reference has been made to the submissions made on Ivancica’s behalf, which, in my view, clearly revealed that she was distancing herself from either loan, and, as importantly, from having made any repayments in respect of either loan. It is impossible to accept that her intentions, as to any such payments, were made to reduce a debt which she consistently denied.

To the extent that Walter repaid $200,000 from money held in the joint bank account, which money in whole, or in part, was obtained from the proceeds of sale of the Caringbah property, that is a matter between Ivancica and Walter. It is to be noted, in addition, that the cheque referred to, which was deposited into the joint bank account, was made payable to them both.

The possibility of there being an available claim by Ivancica against Walter was raised at the commencement of the hearing when Mr Ireland QC was asked whether there was any Cross-Claim brought by her against him and whether anything flowed from that. Mr Ireland QC responded that it followed “[o]nly that Mrs Erceg has been advised not to make a cross-claim”: Tcpt, 4 November 2019, p 4(09–39).

In any event, in response to the submissions generally, a person who deposits money in a bank account held in joint names vests the right to the debt or the chose in action in the persons in whose names it is deposited. The conclusion that one of the signatories to a joint account can withdraw, and keep money withdrawn, from that account, absent some binding limitation on doing so, appears in Russell v Scott (1936) 55 CLR 440 at 454; [1936] HCA 34, where Dixon and Evatt JJ wrote in the case of an elderly woman who had put money into a joint account in the name of herself and her nephew:

Earlier, at 450–451, the learned Justices had written that a “bank account” is nothing more or less than a chose in action, consisting “in the contractual right against the bank, i.e., in a debt, but a debt fluctuating in amount as moneys might be deposited and withdrawn”.

Starke J, relevantly, concluded at 448–449:

There was simply no evidence to suggest that the joint bank account was not one on which both of the account holders were entitled to draw. There was no evidence of Ivancica’s intentions in regard to the deposit of any part of the proceeds of sale of the Caringbah property into the joint bank account, or any agreement about her and Walter’s respective rights in respect of the moneys in the joint account. There was also no evidence as to what arrangements, if any, existed between them as to the use of the money in the joint bank account. Without this evidence, I am unable to find that Ivancica did make any repayments, or that any of the payments were made for her benefit.

I am unable to find, now, after the trial is concluded, anything to have precluded either of the joint account holders drawing money from the joint account. The Court cannot imply, or infer, limitations on the authority of one to draw funds from the joint account and apply it for his, or her, own purposes.

It follows that the amounts totalling $200,000 were repaid by Walter to reduce his indebtedness. I am unable to accept the submissions made on behalf of Ivancica.

Ivancica submitted that there is a presumption that Walter’s payments were allocated to the earlier loan. The legal basis for that presumption was not identified other than being described as “‘the rule in Clayton’s case’”.

Patricia and Michael submitted that there was no basis for the submission and it should be rejected.

It seems to me, however, that the answer to this question is found at [268] and [272], of the principal judgment:

In any event, for reasons referred to, if there is any such presumption, a matter which I do not decide, it would have been rebutted by the facts of the case.

In the amended Statement of Claim, at par 6, the Plaintiffs claimed interest pursuant to s 100 of the Civil Procedure Act. They have maintained the claim.

Ivancica submitted that no interest should be paid by her because Walter is liable for interest on the same loan at the rate of 4% per month. She also asserted that, as between Patricia and Michael as lenders, and Ivancica as borrower, there was no contractual obligation to pay interest.

Despite it being raised by the Court, it was not submitted, on behalf of Ivancica, that where there is a significant difference between court interest rates and commercial, or other, interest rates, the Court should make a discretionary reduction of either the rate of, or the period during which, interest is awarded: see Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382 at 389, 394, 396 and 398; Tcpt, 12 March 2020, p 23(41) – p 24(04).

Nor was it submitted that there is, currently, a significant difference between the rates of interest for which Practice Note SC Gen 16 (to which I shall refer) and any interest rate at which the Plaintiffs would be in a position to invest the funds: Tcpt, 12 March 2020, p 23(41) – p 24(04).

Patricia and Michael submitted that there was no basis for not requiring Ivancica to pay pre-judgment interest as she has had the benefit of the loan amount. In a letter dated 20 January 2020 addressed to the solicitors for Walter (Ex PQ1), but acknowledged as having also been received by her solicitors (Tcpt, 12 March 2020, p 32(50) – p 33(02)), their solicitors set out the calculations for interest and referred to the rate prescribed by Practice Note SC Gen 16.

As I wrote in the principal judgment at [277], no submissions had been made as to the relevance, or applicability, of s 100 of the Civil Procedure Act, in relation to the claim for interest made against Ivancica. That section provides:

There was no agreement between Patricia and Michael, as lenders, and Ivancica, as to the payment of interest on the loan to Ivancica and no interest is payable on the debt “as of right”. It was only Walter who had agreed to pay interest of 4 per cent per month.

The section does not provide for a specific regime which mandates the time from when, and the rate at which, interest is to accrue on the judgment, leaving both to the discretion of the Court, except in relation to what is not authorised.

Clearly, interest cannot be awarded in respect of the period before the date on which the cause of action arose. Pre-judgment interest runs until “the time the judgment takes effect” and for “the whole or any part of the period from the time the cause of action arose”.

In Northern Territory v Griffiths (2019) 93 ALJR 327; [2019] HCA 7 at [354], Edelman J wrote:

In Maestrale v Aspite (No 2) [2014] NSWCA 302, the Court of Appeal (Beazley P, Macfarlan and Barrett JJA) wrote, at [8]:

The purpose of an award of interest is to compensate a plaintiff, or plaintiffs, for actual loss the plaintiff, or plaintiffs, suffers, or suffer, by being kept out of his, her, or their money from the time when the loss was suffered until the date of judgment: MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657 at 663, 666; [1991] HCA 3; Grincelis v House (2000) 201 CLR 321; [2000] HCA 42. It is not awarded to punish the debtor for the non-payment or refusal to pay: Batchelor v Burke (1981) 148 CLR 448 at 455 (Gibbs CJ); [1981] HCA 30.

Section 100 does not provide any guidance as to the manner in which the discretion to award pre-judgment interest should be exercised. One matter that may be relevant is where the applicants have been guilty of delay of a kind which makes it unjust for them to have interest on the judgment during the period of the delay. However, delay on its own is not enough to necessarily prevent plaintiffs from obtaining an award of interest because the defendant has continued to have the benefit of the use of the money during the period of the delay: Kalls Enterprises Pty Ltd (in liq) v Baloglow (No 3) [2007] NSWCA 298 at [10]–[11].

The rate at which interest is payable is the subject of the Court’s discretion. However, Practice Note SC Gen 16 applies. The Practice Note was issued on 16 June 2010 and commenced on 1 July 2010. Its purpose is “to set the rate of pre-judgment interest that may be awarded under s 100(1) and (2) of the Civil Procedure Act 2005”.

Paragraph 5 of the Practice Note provides:

In Sayour v Elliott (No 2) [2018] NSWSC 146 at [29], Ward CJ in Eq, wrote:

Counsel for Patricia and Michael submitted that, in the circumstances of the present case, the appropriate date from which interest to compensate them should be calculated on the amount of $375,000 was 1 March 2017. To the extent that pre-judgment interest was to be awarded, Ivancica did not dispute that this was the appropriate date from which interest should be calculated: Tcpt, 13 March 2020, p 34(50). I see no reason not to award the Plaintiffs interest pursuant to s 100 of the Civil Procedure Act, against Ivancica, at the rate contemplated by Practice Note SC Gen 16 from that date. There was no submission made to the contrary as to the applicable rate.

The pre-judgment interest should continue to run until the date that orders are made.

In the event that Walter repays any part of the debt and interest calculated at the rate of 4 per cent per month, no interest would be paid by Ivancica for the period for which interest is paid.

The basis of this issue is that the evidence demonstrated that on 14 October 2016, a cheque for $20,000 had been deposited into Frank Masci’s account: Ex TB1/239. Another document (Ex TB1/436) revealed that a cheque for $20,000 was, on 14 October 2016, debited from the account of Caringbah Investments Pty Ltd, which was a company in which Walter was a director, but in which the four issued ordinary shares were beneficially owned by Ivancica: Ex 2DQ3.

It should be noted that in his amended Cross-Claim of 18 April 2019, Walter had asserted, at par 13 (in relation to the payment made to Frank Masci of $7,500) that he paid the amounts at the request of Michael.

It was submitted that, since he was not a shareholder of the company from which the amount of $20,000 had been paid, the payment should be treated as having been made for the benefit of Ivancica and should have been treated by Patricia and Michael as having been paid to reduce her indebtedness.

I am unable to accept this submission. There was no evidence of what arrangements had been made between the company and Walter. To require the Plaintiffs to treat the payment in this way, would be completely inconsistent with what was asserted throughout the proceedings, namely that the amounts had been borrowed by Walter only and were not debts of Ivancica.

Walter did not suggest that anything other than the usual order for costs should be made.

Ivancica made the following submissions on costs:

Reliance was placed on Uniform Civil Procedure Rules 2005 (NSW), r 42.34 which provides:

Patricia and Michael submitted that the usual order for costs should be made. Counsel said that the Court should be satisfied that this was a case where the continuation of the proceedings was warranted.

I do not accept the submissions made on behalf of Ivancica. None of them has any merit in the circumstances of this case (other than the one relating to the change of the Plaintiffs’ claim to which I shall refer). Until the hearing, Ivancica had opposed, and throughout the hearing continued to oppose, the relief sought by the Plaintiffs. At the hearing, she decided, without notice to the Plaintiffs or the Court, to not read the affidavits which had been served, thereby, avoiding entering the witness box and being cross-examined. Then, steadfastly, she maintained throughout the proceedings, by assertion, rather than by sworn evidence upon which she was cross-examined, in the events that happened, that she had no obligation to repay any part of the amount of $375,000 that was borrowed, despite the fact that the whole of that amount was used to assist in the payment of property which was registered in her name.

One other matter is relevant to the costs issue and the burden of those costs. At [6] of the principal judgment, I noted:

In accordance with the usual rule, Ivancica and Walter should obtain her, and his, costs, respectively, thrown away by the abandonment of this part of the case initially advanced. Otherwise, the usual order for costs should be made in respect of the claim and the cross-claim.

In accordance with the suggestion that once the parties have these reasons, they should be able to reach agreement, I order that, within seven working days of publishing these reasons, they should forward to my Associate, in hard and soft copy, short minutes of order, to give effect to these reasons for judgment. Now, there should be no difficulty in making the mathematical calculations.

When I am provided with short minutes of order signed by the legal representative of each of the parties, I shall make the orders in Chambers and inform the parties when the orders are made.