New South Wales Supreme Court CITATION : American Express International Inc v Ian Bennell & Anor [2003] NSWSC 976 HEARING DATE(S) : 23-25/09/03, 21/10/03 JUDGMENT DATE : 3 November 2003 JUDGMENT OF : Cripps AJ DECISION : (i) The second named defendant is not liable as a guarantor for the indebtedness of the first named defendant; (ii) judgment for the plaintiff against the first and second named defendants; (iii) The first and second named defendants to pay the plaintiff's costs CATCHWORDS : Debt owing on credit cards - late payment interest claimed to be a penalty - liability of guarantor PARTIES : American Express International Inc - Plaintiff Ian Bennell & Anor - Defendants FILE NUMBER(S) : SC 12169 / 2002 COUNSEL : M. Ashhurst - Plaintiff S.J Bennell (in person) - 1st and 2nd Defendants SOLICITORS : Kemp Strang Lawyers - Plaintiff IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION Cripps AJ 3 November 2003 12169/02 - American Express International Inc v Ian Bennell & Anor JUDGMENT 1 HIS HONOUR: On 7 August 2002 the plaintiff commenced proceedings against four named defendants to recover charges incurred by them on their credit cards and, in the case of the first and second named defendants pursuant to guarantees given by them. The plaintiff has discontinued against the third and fourth named defendants. 2 The first named defendant was, at all relevant times, the holder of a platinum card, a gold card and a corporate card (of which he was the primary cardholder) issued by the plaintiff. The second named defendant was, at all material times, the holder of a gold card. 3 The plaintiff was represented by counsel. The first and second named defendants were represented by lawyers at the time their amended defence was filed but not thereafter. The second named defendant Ms Bennell represented herself and her husband. She gave evidence – her husband chose not to. The evidence presented by Ms Bennell does not persuade me that her husband was unable to give evidence. 4 It was agreed that as of the date of the statement of claim the first named defendant had incurred charges on his cards (and to the exclusion of interest by way of liquidated damages attached to those charges) as follows: Platinum card: $723,963.00 Gold card: $171,100.00 Company card for which the first named defendant was primarily responsible a sum of : $339,418.00 5 At the same time the second named defendant included charges (excluding interest by way of liquidated damage) in an amount of $8,239.65. 6 The plaintiff also claims interest on outstanding monies pursuant to the contract (as to which see later). As at the end of September 2003 the interest claimed against the first named defendant amounted to $745,273.00. No interest was charged in respect of the amount owing on the second named defendant's card. 7 As against the first named defendant the plaintiff claims the sum of $1,979,754 made up as follows: $1,234,481 being charges to the three cards together with $745,273 interest for late payment as at the end of September 2003. 8 As against the second named defendant the plaintiff claims the sum of $1,987.993 made up as follows: $8,239.00 being charges to her card together with $1,979,754 (as guarantor for charges incurred together with interest for late payment on the first defendants three cards. 9 In the defence filed by their lawyers the first and second named defendants claimed that certain items the subject of charges by the plaintiff were not correct. However the issue concerning the correctness of charges on the accounts dissolved in the course of the proceedings. Both defendants claimed interest charges amounted to a penalty and hence were not claimable and the second defendant claimed she was not liable pursuant to a guarantee, the terms of which will be referred to later. 10 Both defendants relied on a set-off being an entitlement by them to damages payable by the plaintiff by reason of its breach of contract and/or misrepresentations made to them concerning a transaction involving the proposed acquisition by them of a yacht named "Noble House". 11 The claims by the plaintiff against the two defendants include not only charges actually incurred by them and put on their cards but also (pursuant to the contract entered into between the parties) what was described as "liquidated damages" being, 3% per month on any part of the balance remaining unpaid at 15 day intervals (see clause 35). 12 On behalf of both defendants it is submitted that what is described as liquidated damages i.e. 3% on the amount owing per month is a penalty and hence is not enforceable in these proceedings. There is no dispute concerning so much of the claim as is referrable to the charges and so much as is referrable to interest or (late payment fees). The late payment fee on charges incurred as at July 2002 and up to end of September 2003 represents approximately 56% of the charges incurred. 13 I have already mentioned that the plaintiff alleges that the second named defendant is liable as guarantor of the monies owing by the first defendant to the plaintiff pursuant to the agreements preceding the issue of the platinum, gold and corporate cards. In the amended statement of defence it was alleged that the guarantee document (undated) and purporting to be a guarantee was not, in terms, a guarantee of debts incurred by the corporate cardholder (# 376010288505006) and that, in any event, it did not operate as a guarantee by the second named defendant of indebtedness incurred by the first named defendant. Card number 376010288505006 refers to the corporate card issued in the name of Total Entity Pty Ltd. The first named defendant is the person primarily responsible for charges on that card. 14 At the conclusion of the evidence, apart from the set-off, there were two issues for determination. The first was whether the interest claimed by the plaintiff should be characterised as a penalty and hence not enforceable by way of liquidated damages. The second is whether the guarantee bound the second named defendant and made her liable for the debt incurred by the first named plaintiff. 15 The guarantee. The guarantee document was undated. It provides as follows: "Pro-forma corporate guarantee In consideration of American Express International Inc allowing the cardholder set out below to transact credit on the Cardholder's American Express account shown below, the guarantor hereby guarantees the due payment of all monies due and payable by the Cardholder to American Express for all charges due to American Express under the terms and conditions of this card. This guarantee shall be a continuing guarantee notwithstanding that the credit limit on the American Express card is exceeded. A guarantor's liability for payment to American Express shall be limited to the amount outstanding as due and payable by the Cardholder to American Express for charges made for using the American Express card. The Guarantor acknowledges that American Express may in its absolute discretion enforce this guarantee against the Guarantor without the necessity of taking any steps or proceedings against the Cardholder. The Cardholder: Ian Robert Bennell The American Express Account Numbers: 376039687811004 376010288505006 376030952729005 The Guarantor: Ian Robert Bennell 19 Mandalong Rd, Mosman NSW 2088 Susan Jane Bennell 19 Mandalong Road Mosman NSW 2088" Both guarantors signed the above agreement in the presence of a witness Katherine Anne Morton. 16 On behalf of the second named defendant it is alleged that although she and her husband signed as guarantors they signed as directors and shareholders of Janile Pty Ltd and, accordingly it was Janile Pty Ltd which was liable under the guarantee and not the second named defendant. Janile Pty Ltd was not represented before me but, in the light of what the defendants claim to be their interest in Janile Pty Ltd I accept submissions made by them as binding on Janile Pty Ltd. 17 In the course of correspondence between the lawyers before suit it was alleged that the first named defendant was "sole shareholder and sole director of Janile Pty Ltd". I was informed in the course of address by the second named defendant that although that assertion had indeed been made by her lawyers they later informed the plaintiff that the second named defendant was also a shareholder and director of Janile Pty Ltd. I invited the plaintiff, if she wished, to tender the letter she referred to when addressing me. No letter was produced. However a company search indicates that as at 20 March 2001 the first and second named defendants were the only shareholders in Janile Pty Ltd and the first and second named defendants were directors. 18 Thus the issue became whether or not the guarantee was given by the first and second named defendants whose names appear on the document as guarantors or whether it was given by Janile Pty Ltd on whose letterhead it was written. The circumstances favouring the submissions on behalf of the defendants that the guarantor was Janile Pty Ltd include the fact that the document refers to a "pro-forma corporate guarantee" and that the first and second named defendants who signed it were sole directors and shareholders of Janile Pty Ltd. The defendants also rely on the circumstance that Mr Crundwell (a senior executive of the plaintiff) referred to the "comfort the plaintiff had in relying on the corporate guarantee from Janile". 19 In evidence he was asked "Is it fair to say American Express relied on the corporate guarantee given by Janile Pty Ltd" and he said "That's not my intention in that email to Terry. It is not my intention to suggest we solely relied on it" (emphasis mine). The memo from Mr Crundwell to Terry refers to the proposed acquisition of "Noble House" and Mr Crundwell's statement "I would be comfortable with the previous levels given the financial info we have on Janile Pty Ltd together with corporate guarantee which although it is on the company, is accompanied by documentation indicating that the card member had access to Janile funds". This memo was dated 29 April 2002. 20 Mr Ashhurst on behalf of the plaintiff does not dispute that "on a quick reading an ordinary person might conclude that Janile Pty Ltd was the guarantor". It would seem unlikely that the guarantee was a pro-forma guarantee for a corporation because the principle debtors being the cardholders were not corporations (or at least two of them weren't). On its face, in my opinion, it is a guarantee by Janile Pty Ltd of the three cards referred to in the guarantee document. Had the words "director" and "shareholder" appeared after the names of the first and second named defendants (the Bennells) the matter would have been clear beyond doubt. There is some ambiguity about the matter and I am entitled, I think, to have regard to that ambiguity and to the surrounding circumstances to construe this document in favour of the submission put before me by the defendants. The guarantee can mean that either Janile Pty Ltd guaranteed the three cards (one of which is a corporate card) or it can mean that the two defendants individually guaranteed the debts on the three named cards – all of which fixed primary liability on Mr Bennell the first named defendant. It is unlikely that the plaintiff was seeking a guarantee from Mr Bennell that he would pay his own debts. 21 I have come to the conclusion therefore that the guarantee as given and accepted by the plaintiff was a guarantee by Janile Pty Ltd of payment of charges incurred on the three named cards mentioned in the guarantee. 22 The next issue is whether or not the "liquidated damages " is in truth a claim for a penalty. On behalf of the defendants it has been submitted that interest at the rate of 3% per month compounded is the equivalent of an interest of approximately 56% by September 2003 of the charges that were on the cards in July 2002. It is submitted that what is claimed is on any view well in excess of a genuine pre-estimate of the damage suffered by the plaintiff by reason of the cardholder failing to pay for charges incurred each month. However the circumstance that by September 2003 the interest on the charges owing as at July 2002 increased the cardholders liability by 56% does not mean that the clause is a penalty. The plaintiff sued for charges incurred on its cards. In fact there was no defence to the plaintiff's claim by either the first named or second named defendant that charges on their accounts were owing. The first and second named defendants sought to set off what was owing under the contracts between the plaintiff and themselves a claim Mr Bennell the first named defendant had against American Express. The defendants had a choice to pay the money (thereby putting an end to what is described as the unfair compound interest) or refusing to do so until their own claim was resolved. I do not think that the claim for liquidated damages is relevantly a "penalty". There is no acceleration of interest charges such as often occurs in hire purchase agreements or lease of chattel agreements and the claim for interest is not retrospective. Accordingly I do not accept the submission that the claim for liquidated damages is relevantly a penalty. 23 However I should also mention the circumstance that the plaintiff is entitled by way of liquidated damages to the amount claimed by it means that it is not entitled, as well, to receive interest under the Rules of Court. Thus I have come to the conclusion that although the sum claimed is not a penalty no interest should be awarded on the amount claimed and for which judgment is given as at October 2003. The set off 24 I have already determined that the second named defendant Ms Bennell is not liable as a guarantor for the charges on her husband the second named defendant's, three cards. Ms Bennell conducted proceedings on behalf of herself and her husband. Both claimed the plaintiff was indebted to them for breach of contract and/or for misrepresentation. However the evidence makes it clear that if the plaintiff has incurred a tortious or contractual liability it is incurred to the first named defendant Mr Bennell only. 25 Prior to March 2002 Mr Bennell had negotiations with Sierra Yachting Corporation (Sierra) for the acquisition of a yacht named "Noble House". Mr Bennell was paying Sierra about US$5,300 per fortnight for a period of approximately one year prior to March 2002 for work undertaken by it in connection with his acquisition of a suitable boat. The agreement with Sierra involved Mr Bennell incurring large expenses with respect to "Noble House" including the cost of bringing the boat from Naples to Florida. 26 By March 2001 the first named defendant had offered to buy "Noble House" through Sierra for the sum of $16,250,000 being $500,000 deposit and $15,750,000 to be paid on or before 4 November 2001. It is apparent from the documents tendered that the offer was always conditional upon satisfactory sea trials and a satisfactory survey. These were to have been completed no later than 24 October 2001. 27 Later the offer appears to have varied slightly. On 15 March 2002 the offer was for "Noble House" at a purchase price of $17,500,000 together with a deposit to be paid on or before March 20 of $500,000. There were counter offers and on 15 March 2002 an offer of $17,500,000 with a deposit of $500,000 was repeated and acceptance or rejection was to be communicated on or before 16 April 2002 (later, apparently, extended to 21 April 2002 and later still to May 2002). By this time the seller had made the sale at a price of $17,500,000 conditional on it having the use of the boat for one week in June 2002. 28 Finally the parties agreed that the closing date be extended until 7 May 2002 and reference was made to the payment of $100,000 by way of deposit and an obligation of the first named defendant to transfer an additional $400,000 so as to make a total deposit of $500,000. 29 At the hearing the second named defendant referred to an affidavit sworn by the first named defendant dated 22 November 2002 and said she did not propose to read it. Later and in written submission she referred to the first named defendant's affidavit in which he said that the deposit was reduced from $500,000 to $400,000 in February 2002 and the closing date to "late June 2002". I record that I have not had regard to that affidavit. 30 Ms Bennell said she approached the plaintiff on behalf of her husband to determine whether it would accept Sierra as its merchant in the United States and allow it to put charges owing by Mr Bennell to it on his platinum card. The arrangement was accepted by American Express and between 26 March 2002 and 16 June 2002 charges in an amount of $1,383,378 were placed on Mr Bennell's platinum card. 31 Ms Bennell said in evidence that she told Mr Crundwell a senior executive of the plaintiff in Sydney that the first named defendant Mr Bennell was experiencing delays with wire transfer of money and would like Sierra to put charges on his platinum card account because the wire transfer system hitherto being used by the first named defendant was proving unsatisfactory. There are differences in the evidence of Mr Crundwell and Ms Bennell concerning what Mr Crundwell agreed to. I record that in general I accept the evidence of Mr Crundwell. Ms Bennell has alleged that she spoke to Mr Crundwell in April 2002 informing him that the balance of the deposit (by this time assumed to be US$400,000 and not $500,000 as appears from the contracts) had to be in Sierra's hands at Fort Lauderdale, Florida on or before 12 noon on 14 May. She says that she told him she was putting an additional US$300,000 on the card and that the money had to be "there by 14". Mr Crundwell has denied that he gave any undertaking concerning when, if Sierra's charges had been placed on Mr Bennell's platinum card money would be advanced to Sierra. As he said he was not involved in the process by which the plaintiff paid its merchants in the United States and he was aware that there were different agreements between the plaintiff and its merchants concerning times for payment etc. 32 I should note that the reason why I prefer the evidence of Mr Crundwell where it significantly conflicts with Ms Bennell is not because I think Ms Bennell was being deliberately untruthful. I prefer to think it is because she misunderstood what Mr Crundwell told her. He told her he would authorise amounts to be placed on her husband's platinum card. But he did not give any undertaking, guarantee or assurance as to when money would be paid to the United States merchant Sierra. In this regard it is not entirely irrelevant to note that although the plaintiff says that Mr Crundwell failed in the obligation he had to her (or her husband) she in fact sent him flowers in consideration of the trouble he went to in attempting to try and solve her problem with the money reaching Sierra on or before 14 May 2002 – at a time, if her evidence is accepted, she thought he had let her down badly. 33 As I have said US$100,000 was paid by the plaintiff to Sierra in Fort Lauderdale, Florida. Later US$300,000 was charged to the first named defendant's platinum card in two separate transactions on 5 and 8 May 2002 and respectively being for US$196,310 and US$123,300. These sums were not paid until about 14 May 2002 or some time shortly thereafter. The two sums add up to US$319,610. I do not know to what the US$19,610 was directed but I assume it referred to other charges put on the second first named defendant's platinum card by Sierra. 34 The second named defendant has said that on Saturday 11 May 2002 she spoke to Mr Crundwell in Sydney complaining that Sierra had told her that it had not been paid the US$300,000 which had previously been put on the first named defendant's platinum card. She said he responded by saying "that's not possible I authorised it the day you called me". 35 Mr Crundwell, in evidence which I accept, said that he had authorised the monies in six different lots on 5 & 8 May 2002 to be debited to the first named defendant's platinum card account but, as I have said, denied making any representations concerning when Sierra would be paid. 36 Why the money that had been debited to the platinum card of Mr Bennell was not paid to Sierra until about 14 May as claimed by the plaintiff or between 16 and 20 May as claimed by the first named defendant was not really explained. 37 I should also mention that from the bar table Ms Bennell told me that the $500,000 deposit had been reduced to $400,000 and that she wished to produce some documentary evidence to establish that fact. I gave her leave to present that material to Mr Ashhurst on behalf of the plaintiff to determine his attitude as to whether it ought to be received in evidence in the proceedings. The second named defendant sought to read the affidavit of her husband dated 22 November 2002 and referred to in paragraph 29 of these reasons. It was again objected to and as I have said it was not admitted into evidence. 38 I do not think Mr Crundwell gave any guarantee or made any representations concerning when payments would be made by the plaintiff in America to Sierra at Fort Lauderdale. Thus even if one accepts the plaintiff's case that Sierra cancelled the contract upon the failure of the first named defendant to pay it $3000,000 being the balance of deposit on or before 14 May 2002 (and on the evidence before me that conclusion is by no means clear), a question remains whether the plaintiff is liable in damages to Mr Bennell consequent upon cancellation. In fact the deposit of US$300,000 was refunded to him. The evidence is silent concerning what happened to what happened to the earlier US$100,000 expressed to be part payment of deposit. 39 If Mr Bennell had a claim against the plaintiff (and I do not think he has) his damages would not involve the expenses incurred by him before the boat was purchased. It would be the difference in value, if any, for what he paid for the boat (or rather what he was prepared to pay for the boat) and what the value of the boat would have been after he acquired it. It is possible that by reason of pre-acquisition investigations that an immediate purchaser from the first named defendant would have paid more for the boat than Mr Bennel paid. However there is no acceptable evidence concerning the difference in value between what Mr Bennell was prepared to pay for the boat and what its value was at the time Sierra cancelled the contract (if that is what happened). 40 So far as the claim for damages by the defendants is concerned the claim would be the same in tort or in contract. That is the loss suffered by the plaintiff pursuant to what was claimed to be a misrepresentation would have been the same as for breach of contract. In either case the expenses associated with the acquisition and, in particular, monies spent on having Sierra investigate the first named defendant's acquisition would have been incurred in any event whether or not the "Noble House" was purchased. 41 In the course of the proceedings I admitted a document tendered by Ms Bennell, which would appear on its face to suggest that payments were received by Sierra on 16 and 20 May. The document was objected to and I think, the better view is that the document should not have been accepted into evidence because there is no evidence concerning the reliability of the information set out in it. But this I think, in any event, is a distraction. Whether the money was received as the plaintiff would have me accept on or about 14 May 2002 or whether it was received a few days after that does not alter the primary finding I have made viz that Mr Crundwell had not given any assurances to the defendants concerning when American Express in the United States would pay monies to its merchant Sierra. I have therefore concluded that Mr Crundwell made no misrepresentation to the first named defendant and hence was not liable to him for what occurred between the first named defendant and Sierra in the middle of May 2002. 42 In the course of proceedings evidence was given by the second named defendant that certain jewellery to the value of $435,000 was given to the plaintiff. She complained that her jewellery has not been returned. The circumstances surrounding the lodging by Ms Bennell of jewellery with American Express has not been the subject of the claim by the defendants in these proceedings nor has it been explored in evidence. It was not part of the claim before me and I record I have expressed no view about the matter at all. 43 My conclusions therefore are as follows: (i). The second named defendant is not liable as guarantor for the indebtedness of the first named defendant. (ii) There will be judgment for the plaintiff against the first named defendant in the amount of $1,979,754 being the sum total of charges incurred together with late payment fees. (iii). There will be judgment for the plaintiff against the second named defendant in the sum of $8,239 (being the charges on her gold card and I note that no late payment fee has been claimed). (iv) The first and second named defendants to pay the plaintiff's costs of the proceedings. ********** Last Modified: 11/10/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.