Bega v Lauvan Pty Ltd

1. [1]

   MEAGHER JA: I agree with Leeming JA.

2. [2]

   LEEMING JA: The primary judge conducted a trial over 8 days, involving more parties and many more issues than are presented on Mrs Bega’s appeal. There is thus no occasion to summarise most of his Honour’s reasons for judgment.

3. [3]

   It suffices for present purposes to note that the respondent lenders, Lauvan Pty Ltd and Mittabell Pty Ltd, entered into a facility agreement with the appellant Mrs Helen Bega as borrower. Mrs Bega gave security over a property owned by her at Denham Court, near Campbelltown. The facility agreement recited that Mrs Bega had requested the facility for the purpose of “assisting with short term on lending to family members for proposed commercial investment opportunities in the sum of $1,000,000”. The salient terms are summarised below, including the provisions governing its drawing down, for it was and is common ground that Mrs Bega did not execute a drawdown notice as contemplated by the facility agreement.

4. [4]

   Ms Bega defended the proceedings below, which were brought by the respondent lenders as plaintiffs, on the basis that she was not subject to any liability to the respondents under the facility agreement. She also brought a cross-claim. However, on 22 February 2018, the primary judge entered judgment against her in the amount of $1,000,000 plus interest, gave judgment for possession of the Denham Court property, and dismissed her cross-claim: Lauvan Pty Ltd & Anor v Bega & Ors [2018] NSWSC 154. It will be convenient to defer summarising his Honour’s reasoning (only a small part of which is challenged) until dealing with those of Mrs Bega’s grounds of appeal which were ultimately pressed.

5. [5]

   By further amended notice of appeal for which leave was granted at the commencement of the hearing, Mrs Bega abandoned grounds 6-9 of her earlier appeal and confined her appeal to grounds 1-5A. In her submissions in reply, she abandoned ground 3, which was a complaint that the findings by the primary judge had gone outside the case as pleaded and particularised – the abandonment was made following the pointing out of further correspondence relating to particulars which had been contained in the supplementary appeal book. It should perhaps be said that senior counsel who appeared for Mrs Bega in this Court had not appeared at trial, and appears not to have been involved in preparing her written submissions in chief. His submissions were put concisely and effectively, and reflected the forensic reality that Mrs Bega, together with her husband and son, had given evidence before the primary judge and were the subject to extremely unfavourable findings: at [27]-[34], including the finding at [30] that her “evidence that she thought there was no loan to her is so implausible that I cannot accept that she was genuinely mistaken in giving her evidence”. No challenge was made to those findings.

6. [6]

   The five extant grounds of appeal comprise two classes. Grounds 1 and 2 are directed to the construction of the facility agreement, and whether it could be said that there was an advance pursuant to the facility agreement in the absence of a written drawdown notice. Grounds 4, 5, and 5A challenge the factual findings that Mr Peter Bega and Mr Mullins had authority to request the advance of $1 million under that agreement, and that Mr Mullins did so.

7. [7]

   All of those grounds are premised upon the finding, favourable to Mrs Bega, that a request or direction was required in order for an advance to be made under the agreement. The respondents’ submission to the contrary was rejected by the primary judge at [211]-[213], and no notice of contention was relied upon by them on appeal. It is, accordingly, unnecessary to express any views as to whether the mere advance of funds consistently with the stated purpose of the agreement would amount to an advance.

8. [8]

   It is necessary to summarise, briefly, the transaction said to give rise to Mrs Bega’s indebtedness to the respondents, in part to provide the context for the submission that a written drawdown notice was required, and in part because of the way in which ground 5A was sought to be advanced. It is convenient to do so immediately.

Factual background

1. [9]

   Mrs Bega’s husband Peter and son Aidan gave evidence. The former had been declared bankrupt in August 2012. Mr Dominic Mullins was a director and shareholder of South Townsville Developments Pty Ltd (STD), a company which in 2013 commenced development of the Allure Apartments, which comprised 42 residential units and some commercial units in South Townsville. The trial judge recorded (at [14]) that there was a dispute whether Mr Peter Bega or the Bega family was the beneficial owner of STD.

2. [10]

   In June 2013, the respondents made a construction loan of $9.5 million to STD for the development of the Allure Apartments. Mr Aidan Bega and Mr Mullins guaranteed STD’s obligation to repay that loan. Construction was completed in around August 2014, but the primary judge recorded at [41] that:

3. [11]

   In the meantime, the respondent lenders issued a notice of default to STD for failing to repay the principal, and capitalised interest, totalling $10,700,000.

4. [12]

   Mr Aidan Bega was also appointed the sole director of AB Veritas Pty Ltd when it was incorporated in September 2014. On 20 February 2015, STD as vendor entered into a contract with AB Veritas as purchaser, guaranteed by Aidan Bega, for the sale of seven of the units in the Allure Apartments for a total purchase price of $3,080,000. Settlement of that sale was due at the end of March 2015. AB Veritas obtained approval for mortgage finance on 20 March 2015 in the amount of $1,820,000 from Arch Finance Pty Ltd, a company which appears to have been unrelated to the parties to the litigation. The balance of the purchase price was to come from funds lent by the respondents. Arch Finance’s approval expired on 31 March 2015.

5. [13]

   At around the same time, there were put in place two further sales of units in the Allure Apartments, referred to as “Tranche 2” and “Tranche 3”. These were described by the primary judge at [57]-[58] as follows:

6. [14]

   On 1 and 2 April 2015, Mrs Bega executed the facility agreement for a loan of $1,000,000, for a term of 6 months, with interest at 20% per annum, rising to 30% if not repaid in full at the end of the term, and with interest of $104,260.42 payable in full even if the loan were repaid early. The loan was secured by a mortgage over her Denham Court land.

7. [15]

   Because the $1 million the respondents agreed to lend Mrs Bega was to be paid by her to AB Veritas, and by it to STD, and returned to the respondents, at settlement there was a round robin of cheques. STD also provided a further $359,000 to make up the difference between the purchase price and the moneys to be provided to AB Veritas by Arch Finance and Mrs Bega. STD was represented by a Mr Stathakis and a settlement clerk from STD’s solicitors. Mr Stathakis was a director and shareholder of STD but he held his shares on trust for the Bega family and acted on Peter Bega’s direction (Judgment [26] and [39]). Mr Mullins was also a shareholder and director of STD. He also held his shares on trust for Peter Bega’s sons and acted on Peter Bega’s directions (Judgment [39]). Mr Delaney was the solicitor for AB Veritas.

8. [16]

   The primary judge described settlement, which occurred in Brisbane on the afternoon of 2 April 2015, as follows (at [105]-[106]):

9. [17]

   The upshot of the transaction was that, from the perspective of the new mortgagee, Arch Finance, it had lent funds to AB Veritas, comprising what appeared to be 60 per cent of the purchase price of seven units. However, the balance of the purchase price was provided by the outgoing mortgagee, which (on its case) had lent those funds to Mrs Bega secured by a mortgage over her home. Hence the reference to the “round robin” and to Mr Stathakis providing one bank cheque when he attended settlement, and leaving with that bank cheque and the other provided by AB Veritas. Hence also the significance of Mrs Bega’s complaint that there was no drawdown notice. Although the stated purpose of the facility was “short term on lending”, this was not a case where the $1,000,000 was ever transferred into Mrs Bega’s bank account or provided to her personally in the form of a cheque.

10. [18]

    I shall return to tranches 2 and 3 when dealing with ground 5A below.

Grounds 1 and 2

1. [19]

   Grounds 1 and 2 of Mrs Bega’s appeal are as follows:

2. [20]

   These grounds turn upon the construction of the facility agreement which was signed by Mrs Bega on 1 April 2015. The clauses upon which most reliance was placed for the purposes of argument were cll 2.1, 2.2, 3.1-3.4 and 4.1. Those clauses are as follows:

3. [21]

   As earlier stated, the “Purpose” referred to in cl 2.2(a) was defined to mean “assisting with short term on lending to family members for proposed commercial investment opportunities”. “Drawdown Notice” was defined to mean “a notice in a form acceptable to the Financier” and “Advance” was defined to mean “the principal amount of the advance to be made under the Facility”.

4. [22]

   Clause 19.2(a) made provision for notices as follows:

5. [23]

   Clause 19.6 provided that the agreement could only be amended or varied in writing and signed by the parties, while cl 19.9 provided that the documents were an entire agreement. Clause 19.8 dealt with the subject of waivers as follows:

6. [24]

   Submissions were also directed to the following defined terms:

The reasons of the primary judge relevant to grounds 1 and 2

1. [25]

   At [203]-[205] the primary judge summarised, uncontroversially, the relevant principles of construction of commercial contracts, including the requirement to have regard to all the words used “so as to render them all harmonious with one another”: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36. His Honour then rejected Mrs Bega’s submission that a drawdown notice was required, at [206]-[210]:

2. [26]

   Mrs Bega maintained that the requirement for a drawdown notice in cl 4.1 was for the joint benefit of financier and borrower. It may be inferred that that submission was driven by the express language in cll 3.1 and 3.2, not to mention the provision in cl 3.4, to the effect that all of those clauses insofar as they required a written drawdown notice were expressly for the benefit solely for the financier, and could be waived. Mrs Bega said that both parties derived a benefit, namely, commercial certainty from the requirement of writing, and that such benefit was of heightened importance in the present case, where the intention was for funds to be transferred not to the borrower but to a son’s nominated company for commercial investments. Further, because all of the guarantors had irrevocably appointed Mrs Bega their agent for the purposes of, inter alia, notice, there was yet further reason for such certainty to be provided. It was also put that the general provision governing notices in cl 19.2 extended to a drawdown notice, and that the reference there for such notices to be signed by an (uncapitalised) “authorised representative” not only implied that the notice must be in writing but also picked up the defined term “Authorised Representative” and required that person’s authority to have been notified in writing. Reference was also made to provisions dealing with the making of electronic instructions which, through their elaborateness, was said to reinforce the primary objectively manifested intention of commercial certainty.

3. [27]

   A further matter relied upon was the possibility of more than one advance, which was said to support the proposition that a written drawdown notice was required.

4. [28]

   The clause imposing an obligation upon the financier to lend funds is cl 2.1. There is a difficulty in construing cll 3 and 4 because of the inconsistencies in those clauses, principally, whether there was to be one or more advances. The headings to cl 3.1 (“the Advance”) and 3.2 (“all Advances”) are inconsistent, although telling against the significance of this was cl 1.3(f), which provided that “the headings in this agreement are inserted for convenience only and are to be ignored in construing this agreement”. But the inconsistency is maintained in the operative provisions. Clause 3.2(a) refers to a request for “a single Advance of the total amount”, whereas cl 4.1 refers to multiple drawdown notices, not only in its heading but also, at least implicitly, by the words “each drawdown notice” in cl 4.1(b). A similar inference may be drawn by the use of the indefinite article in cl 4.1(c). Against all of that is the operative provision cl 2.1(a) which refers to “a fully drawn cash advance” of the “Net Available Amount”. (The “Net Available Amount” was defined to mean “the facility less the fees and costs”.) Further, the obligation to pay interest had already been determined and on the basis that the entire amount will be drawn down.

5. [29]

   There is much that reflects the parties’ use of an unnecessarily elaborate template document for a simple purpose, in circumstances of considerable haste (it is to be borne in mind that STD was incurring interest at the rate of some $20,000 per week and the loan approval from Arch Finance was for a limited time). But the infelicities and inconsistencies in the drafting ultimately bear little weight in determining the question of construction arising on these grounds, which is whether Mrs Bega could be said to have borrowed funds under the facility, and therefore become liable to repay them, in the absence of a drawdown notice. It is not necessary to determine whether the facility permitted only one, or more than one, Advance, in order to resolve this appeal.

6. [30]

   Although cl 3.2(a) makes a drawdown notice a condition precedent to funding an Advance, cl 3.4 unequivocally provides that that provision is for the lender’s benefit and could be waived by the lender. Mrs Bega’s submission that a drawdown notice was for the joint benefit of borrower and lender, and could therefore only be waived by both parties, is said to be supported by cl 4. But cl 4 goes to timing; the fact that a drawdown notice is a condition to the making of an Advance comes from cl 3.2, not cl 4. Further, the implication sought to be derived from cl 4, that the need for a drawdown notice could only be waived jointly by borrower and lender, is inconsistent with the express language of cl 3.4. None of the matters to which Mrs Bega points undercuts the force of the clear language which was squarely directed to the benefit of the obligation being solely that of the lender who might unilaterally waive it.

7. [31]

   These were in essence the matters on which the primary judge relied in rejecting the identical submission. His Honour’s reasons, reconciling cll 3.2, 3.4 and 4.1, are, with respect, compelling.

8. [32]

   These grounds are not made out.

Grounds 4 and 5

1. [33]

   Grounds 4 and 5 are as follows:

2. [34]

   The primary judge rejected the lenders’ threshold submission that the facility agreement did not require any request or direction to have been given by Mrs Bega to advance the $1 million: at [211]-[213]. His Honour also rejected the lenders’ submission that the acknowledgement of receipt in the executed mortgage was decisive, on the basis that it referred to the executory promise to advance the $1 million: at [214]. Ultimately, his Honour found in favour of the lenders on the basis that Mr Peter Bega had actual authority, and (if it were necessary to decide) Mr Mullins had ostensible authority, on behalf of Mrs Bega to request the advance of $1 million. His Honour rejected the submission that this was outside the lenders’ case, and although this was challenged by ground 3, that ground was abandoned by Mrs Bega in submissions in reply.

3. [35]

   The primary judge addressed the submissions based on actual and ostensible authority with some care. His Honour addressed the applicable legal principles, in a way which is not challenged on appeal, at [217]-[224], and then turned and addressed, separately, the authority of Mr Peter Bega and Mr Mullins. His Honour’s conclusion was at [225]:

4. [36]

   It will be seen that grounds 4 and 5 challenge each of the findings of authority. It is desirable, having regard to the way in which submissions in support of these grounds were advanced on appeal, to reproduce the reasoning of the primary judge in full, despite its length.

5. [37]

   The primary judge concluded that Mr Peter Bega had actual authority at [226]-[235]:

6. [38]

   The primary judge addressed Mr Mullins’ ostensible authority at [236]-[241]:

7. [39]

   There was no challenge made to any of these findings of primary fact, many of which appear not even to have been controversial. Rather, Mrs Bega relied on cl 1.1 of the contract, which required an authorised representative to be appointed in writing. Further, this submission was only advanced in her written submissions in reply, in six paragraphs occupying a page, in response to the respondents’ observation in their written submissions that no submission at all had been made in chief. Mrs Bega’s submission was only elaborated orally very briefly (transcript, 5 October 2018, 12.35 – 13.8):

8. [40]

   So far as I can see, this submission was not pleaded, nor was it put to the primary judge in written or oral submissions. That is the reason why it was not addressed by the primary judge who, as is clear from what has been reproduced above, carefully attended to the submissions made to him in light of the contemporaneous documents, commercial realities and inherent probabilities.

9. [41]

   Clause 1.1, which was the foundation of the submission underlying both these grounds of appeal, provided:

10. [42]

    The short answer to the submission is that neither the definition in cl 1.1, nor the provision in cl 19.2 for notices to be signed by a party or its authorised representative, mandated that all appointments of agents required written notification to the lender. The general rule at law is to the contrary. Unless there is some special provision to the contrary, a person may act in person or else by agent: see The Queen v The Justices of Kent (1873) LR 8 QB 305 at 307, where the reasons of each of Blackburn J, Quain J and Archibald J may be summarised by the statement:

11. [43]

    This was approved by Jordan CJ in Grahame v Commissioner for Railways (1946) 46 SR (NSW) 430 at 435, by Gibbs CJ in O’Reilly v State Bank of Victoria Commissioners (1983) 153 CLR 1 at 11; [1983] HCA 47, and by the Privy Council in General Legal Council ex parte Whitter v Frankson (Jamaica) [2006] UKPC 42; [2006] 1 WLR 2803 at [4]. In Christie v Permewan, Wright & Co Ltd (1904) 1 CLR 693 at 701; [1904] HCA 35, Griffith CJ for the High Court described The Queen v The Justices of Kent as “that very great authority”. One of the current editors of Bowstead and Reynolds on Agency has written that “[t]he starting point of the common law is that whatever can be done personally can be done by an agent”: P Watts, “Some Aspects of the Intersection of the Law of Agency with the Law of Trusts” in P S Davies and J Penner, Equity, Trusts and Commerce (Bloomsbury Publishing, 2017) 29 at 33. It is the generality of the rule at common law that leads to the result that the decisions largely turn on statute, where it is said that statute requires personal performance of some function.

12. [44]

    In principle, it would be open to the parties to contract to require that the performance of some act of their bargain, such as the service of a drawdown notice, be done personally, and in principle, they might provide that if the act were purportedly done by an agent, it was ineffective. But cl 1.1 does not go nearly so far. Clause 1.1 is a definition, which does not purport to impose any obligation or to detract from the parties’ general power at common law. I see no reason, even having regard to the general absence of care in its drafting, for the provision in cl 19.2 to apply to a drawdown notice. I do not rely so much upon the absence of capitalisation of the term “authorised representative”, but on the fact that cl 19.2 is directed to notices applicable after the facility has been drawn down, as is seen most clearly from the fact that cl 19.2(a)(iii) mandates physical delivery at the Financier’s address or sent by pre-paid security post, while cl 19.2(c) makes elaborate provision for when the communication is taken to have been received, all of which sits ill with the condition precedent of delivery of a drawdown notice imposed by cl 3.2.

13. [45]

    The matter may be tested this way. Mrs Bega had received advice on the transaction from a solicitor, to the knowledge of all other parties. Suppose her solicitor had supplied a drawdown notice. I do not think that it could be said that that notice was ineffective, by reason of the fact that no written confirmation from Mrs Bega that her solicitor was acting for her had been supplied to the lenders. There is nothing in cl 1.1 or elsewhere in the facility agreement to sustain Mrs Bega’s submission underlying these grounds, which in my view would require very clear language.

14. [46]

    This ground is not made out.

Ground 5A – no direction from Mr Mullins

1. [47]

   This ground is:

2. [48]

   This was developed in Mrs Bega’s written submissions in chief (at paragraphs 28-35) although it did not appear in her original notice of appeal. The attack was on the findings in the paragraphs concerning what Mr Mullins did at settlement on 2 April 2015, which in turn were based on an inference stated at [232], namely, that:

3. [49]

   That statement was undoubtedly true. The transaction at settlement turned upon a bank cheque in the amount of $1,395,000 being provided by AB Veritas (in addition to the bank cheque provided by the incoming mortgagee, Arch Capital).

4. [50]

   However, Mrs Bega submitted in writing that the evidence suggested that the lenders and Mr Mullins operated on the (mistaken) understanding that “nothing further was required of Ms Bega” following the execution of the documents by her. It was said that Mr Mullins believed that Mrs Bega had to execute the transaction documents on the morning of 2 April 2015, but

5. [51]

   Mrs Bega also relied on some documentary evidence, to the effect that the lenders reduced the indebtedness on the construction loan by $1,450,000, not $2,450,000. She said:

6. [52]

   I did not understand this ground to be developed orally. Nor did I understand it to have been a submission which was made to the primary judge.

7. [53]

   The first answer to this ground is that it was not suggested to Mr Danesi, nor Mr Mullins, in cross-examination that either was subject to a mistaken belief, perhaps because this ground was not sought to be advanced at first instance. For that reason alone, it is not to be entertained on appeal.

8. [54]

   The second is that there is no challenge to the findings of primary fact, reproduced above, to the effect that Mrs Bega entrusted her husband with legal and business matters, that she knew that Mr Mullins was dealing with lenders on her behalf, including by assisting her in an urgent transaction advancing $1,000,000 for the purpose stated in the facility agreement. There is no reason to doubt that Mr Mullins did not by his conduct request the drawdown to be made.

9. [55]

   The internal accounting was deployed for a different reason at trial, namely, that no funds were advanced, rather than the absence of a direction. The primary judge addressed the document upon which Mrs Bega now relies at [108]-[109], concluding:

10. [56]

    The same reasoning leads to the rejection of the submission which is now made based on the document. The fact that the internal accounting, maintained by a person not directly involved, did not immediately reflect the drawdown of the facility does not stand in the way of the inference drawn by the primary judge that Mr Mullins caused it to be drawn down.

11. [57]

    This ground is not made out.

Orders

1. [58]

   It follows that the appeal should be dismissed. There is no reason for costs not to follow the event.

2. [59]

   WHITE JA: I agree with Leeming JA.