Volanne Pty Ltd (ACN 077 412 232)(First Appellant/ First Cross-Respondent) v International Consulting and Business Management (ICBM) Pty Ltd (ACN 080 349 855) (First Respondent/ Cross-Appellant)

• Jurisdiction: Australian Capital Territory
• Court: Court of Appeal of ACT
• Judge: Refshauge J,Perry J,Walmsley AJ
• Judgment Date: 30 September 2016
• Docket Number: File Number(s): ACTCA 54 of 2014
• Date: 30 September 2016

[2016] ACTCA 49

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY COURT OF APPEAL

Before:

Refshauge J, Perry J and Walmsley AJ

File Number(s): ACTCA 54 of 2014

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)

and

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)

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

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.

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.

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 Fragopoulos guaranteed 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 compound interest.

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. Mr Fragopoulos describes himself as a seafood merchant. He employed staff for the business and secured stock for the retail and wholesale side of the business. Mrs Fragopoulos 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 Mr Makas, who was a longstanding friend of Mr Godfrey and a businessman. Mr Godfrey 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 Fragopoulos received 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 Fragopoulos gave 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. Mr Fragopoulos 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. Mr Fragopoulos 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. Mr Fragopoulos said that his seafood business might need some money to operate. Mr Godfrey'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 Mr Godfrey said that he would charge compound interest at the meeting: see also the Master's unchallenged...