Reported Decision : (2006) Aust Torts Reports 81-870 New South Wales Court of Appeal CITATION: GIOURTALIS & Anor v VAITSIS [2006] NSWCA 371 HEARING DATE(S): 6 July 2006 JUDGMENT DATE: 20 December 2006 JUDGMENT OF: Mason P at 1; Hodgson JA at 82; Ipp JA at 92 DECISION: Appeal allowed. CATCHWORDS: Negligence - misleading and deceptive conduct - accountant's representations inducing plaintiff to lend money - causation - whether release of debt in favour of taking up worthless shares was the cause of loss (ND) PARTIES: Angelos GIOURTALIS & Anor John VAITSIS FILE NUMBER(S): CA 40966/05 COUNSEL: Appellants: J Gleeson SC/ S Golledge Respondent: C A Fairbairn (Solicitor) SOLICITORS: Appellant: The Argyle Partnership, Sydney Respondent: Colin Daley Quinn, Kogarah LOWER COURT JURISDICTION: District Court LOWER COURT FILE NUMBER(S): DC 8231/02 LOWER COURT JUDICIAL OFFICER: Balla DCJ IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40966/05 MASON P HODGSON JA IPP JA Wednesday 20 December 2006 GIOURTALIS & ANOR v VAITSIS JUDGMENT 1 MASON P: The respondent is a young man who lost a lot of money lent to persons associated with a business known as The Souvlaki Beachfront Bar ("the Bar") at Brighton Le Sands. It was owned at various times by one or both of Mr Angelos Klimis and Mr Angelos Gourmanis ("the Bar owners") until December 1999 when it was transferred to a company called AAANG Holdings Pty Limited ("AAANG") in which the respondent was given a fifty percent shareholding in circumstances referred to below. AAANG later transferred the business away and was subsequently wound up with no return to shareholders. 2 The first appellant ("the accountant") is an accountant and finance broker and the second appellant is the corporate vehicle through which he conducts his practice. In the District Court there was judgment against the two appellants jointly and severally in the sum of $417,753 and (additionally) against the second appellant in the sum of $12,572. There were various causes of action, but in essence the appellants were held to have given negligent advice in breach of their retainer and to have made misleading and deceptive statements in consequence of which the respondent lost his money. The respondent's principal claims against the Bar owners themselves were dismissed, because he had released them from liability by a Deed entered into in December 1999 on the advice of the appellants. 3 The Notice of Appeal and written submissions of the appellants raised a scattergun of factual and legal issues. Many were hopeless in light of the documentary evidence and even clearer adverse credibility findings by Balla DCJ. The submissions also raised interesting questions about the proper use of fiduciary principles in the particular context. 4 When the matter was called on for hearing, Mr J T Gleeson SC announced his appearance for the appellants, leading Mr Golledge. Neither counsel had appeared below nor been responsible for the Notice of Appeal or the written submissions in this Court. 5 Senior counsel announced that his clients accepted that they could not challenge the core finding that their breach of duty in July 1999 had caused the respondent to lose $100,000 then lent. The appellants also conceded liability to pay interest on this sum at District Court rates. 6 Many grounds of appeal were implicitly withdrawn in the sharply-focused case that was then presented with the assistance of significantly amended written submissions. 7 The Court's preliminary reading of the earlier submissions meant that it was unsurprised that much dross had been sloughed off, and grateful for the belated but valuable assistance from the appellants' side of the record. 8 These economies ensured that the hearing finished within one day. They also demonstrated why it is just that the respondent should receive the costs of preparing his written submissions regardless of the event. Facts and findings now accepted and matters still at issue 9 The respondent was born in 1973. He left school in 1988. He first met the accountant in 1997 during a spell of employment at the Bar. 10 The accountant's company, the second appellant, lent money from time to time. Thus, it lent the respondent $10,000 in October 1998 and (by way of refinancing) $30,000 in February 1999. It also lent money to the Bar owners, advancing $82,500 on the security of a trader's bill of sale on 1 November 1998. The accountant's failure to disclose this secured debt was an aspect of the misrepresentations found against the appellants. 11 AAANG was incorporated on 15 December 1998. The Bar owners were the initial directors and shareholders. It is not clear whether or when the company acquired the assets of the Bar business. 12 In June 1999 the respondent spoke with the accountant and Mr Klimis concerning a second Souvlaki Bar then planned to be opened at Dulwich Hill. Mr Klimis sought from the respondent a loan of $100,000 on terms that the money was to be repaid with $20,000 interest by the end of the year. The respondent spoke to his parents who were apparently to be the source of the money (as it turned out, by mortgaging their home). They wanted more details. 13 There was then a meeting in early July 1999 between the respondent, the accountant and the Bar owners. The respondent's version of that meeting was accepted and it contains what was described as the Third Representation in the pleadings and the judgment below. The respondent said that the conversation was in the following terms: The first defendant [ie. the accountant]: John you do not have to worry about a thing. I have a thorough understanding of all financial matters concerning the Souvlaki Bar. I know that the Souvlaki Bar is a profitable and secure business. I do the accounting and financial work. Mr Klimis and Mr Gourmanis have plenty of money to repay any loan. The plaintiff [ie. The respondent]: I need to know about their business because they are saying I'll be repaid from the sale of the Golden Barrell or the Souvlaki Bar Dulwich Hill. They have told me that they have somebody ready to buy the Souvlaki Bar Dulwich Hill. The first defendant: I guarantee that the money will come back to you before the end of the year from the sale of the Golden Barrell or from the sale of the Souvlaki Bar, Dulwich Hill. I am arranging all the paper work for the sale of the Golden Barrell and for the sale of the Souvlaki Bar Dulwich Hill. Buyers are already organised and deposits paid for the sale of the Golden Barrell and the sale of the Souvlaki Bar Dulwich Hill. The plaintiff: I do not know anything about Mr Gouramanis' financial affairs. I've been in business with Mr Klemis before for a short time selling soft drinks. I am concerned about Mr Klimis because I do not know why he needed to borrow the $10,000 before and now he wants to borrow more money. The first defendant: You've got no need to worry. Mr Klimis is good for your loan. Mr Gouramanis is good for your loan. I can prepare all necessary loan documents if you want to go ahead. The plaintiff: Mum and dad are going to borrow the money from the bank if they agree to lend me the money. The first defendant: Tell them not to do that. I'll organise the money from St George. I am a broker for St George bank. I'll do the loan, I'll take care of everything . The plaintiff: What have I got to gain from this? Who is going to pay the interest, loan repayments and fees? The third defendant [ie. Mr Klimis]: When you get the loan back you'll be given an extra $20,000 to cover you interest. The fourth defendant [ie. Mr Gourmanis]: You'll get your money back and an extra $20,000 to cover your interest, I agree to that. The plaintiff: What happens if I don't get my money back. The first defendant: The Souvlaki Bar in Brighton Le Sands is worth $300,000 on the open market. Eyes closed. Dulwich Hill is sold for $210,000 and a deposit has been taken. You can always fall back on the Souvlaki Bar. You really don't have to worry about anything. 14 The accountant effectively assured the respondent that he had no cause to worry about the Bar owners' capacity to repay the proposed loan; that he had a thorough understanding of all financial matters concerning the Bar and its owners; that the Bar itself was worth $300,000 on the open market; and that the Bar owners had other assets as well. 15 The appellants concede in this Court that this advice entailed a breach of duties owed by them to the respondent. The appellants should have said that the proposed investment was risky and unwise absent full security, and that it needed the fullest investigation. At no stage did the accountant inform the respondent of the existence of the second appellant's registered trader's bill of sale dated 1 December 1998 over the assets of the Souvlaki Beachfront Bar. 16 The accountant said in evidence that, before the December 1999 meeting, he was unaware of any loan arrangements between the respondent and the Bar owners. This denial was rejected by the trial judge based, at least in part, upon a handwritten note by the accountant that effectively contradicted his testimony. In any event, the Deed of 30 December 1999 ("The December Deed") prepared by the accountant records an indebtedness of $150,000 and novates it from the Bar owners to AAANG. 17 The appellants submit, and I agree, that nothing turns on whether the juridical source of the breached duty is the law of negligence, the statutory prohibitions on misleading and deceptive conduct or fiduciary principles stemming otherwise from the general law (equity side). It is also conceded that the respondent relied upon this information to his detriment when, on about 9 July 1999, he paid over $100,000 that his parents had borrowed on the security of their house and made available to him. The detailed application of the funds does not matter, because the parties also agree that the matter should be addressed as if the entire $100,000 was paid by the respondent to or for the benefit of the Bar owners on 9 July 1999. 18 The appellants concede that they are therefore liable to pay the respondent $100,000 plus interest at District Court rates from 9 July 1999 to date of judgment below. 19 There is a $30,000 offset based on the loan transaction made in February 1999 by the appellants (strictly speaking, the second appellant) to the respondent. This offset is not itself in dispute save as to interest calculation. 20 The appellants also concede their liability to repay $20,000 plus interest with reference to a transaction described as the "Jayz Invoice". It represents money paid by the respondent to the second appellant in about late January 2000. The invoice was for advice and accountancy services that were practically useless given that they stemmed from the conceded breach of duty. 21 The second appellant also accepts that judgment in the sum of $12,572 was correctly entered against it on a claim for failure to account for certain tax refunds (Red 154-5, 164). 22 The appellants' concessions in this Court left six discrete issues that are best understood after further facts are recounted. The issues may be labelled as: 1. Impact of promise to pay $20,000 interest on the $100,000 advance; 2. Alleged advance of additional $50,000 between July and December 1999; 3. Loss stemming from entry into Deed of December 1999; 4. Alleged further advance of $70,000 in February 2000; 5. Lost wages claim; 6. Offsetting of interest referable to $30,000 loan to respondent. 23 The first four issues represent the appellants' attacks on the reasoning of the primary judge that supported the judgment entered jointly and severally against the appellants on 22 November 2005 in the sum of $417,753. Some of them are different sides of the same coin. July-December 1999 24 The respondent swore in an affidavit: From late July until about December 1999 I made further cash advances from my own monies to Mr Gouramanis and Mr Klimis. I kept no record in relation to the advancing of those monies and I am unable to recall the precise time and amounts of monies advanced on those times during that period. I recall maintaining a memory of the monies loaned and from time to time I would confer with Mr Klimis and Mr Gouramanis to confirm the additional amounts that I had advanced. Towards late December I approached Mr Gouramanis and Mr Klimis for the purpose of requesting repayment of the Souvlaki Bar loan together with the monies that I had advanced to them from time to time from July 1999. I had a meeting with Mr Klemis and Mr Gouramanis at the home of Mr Gouramanis on or about 29 December 1999. We spoke in the following words: Myself: It's the end of the month. Time's up. I want you to give me my money back. You owe me $150,000.00. $100,000.00 for the loan and $50,000.00 for the monies I have given you since then. Mr Gouramanis: We know that. The money hasn't come through yet. There's going to be a bit of a delay. Myself: If you don't pay me my money you're going to have to do something to secure it. Mr Gouramanis: That's no problem. We'll make an appointment with Mr Giourtalis and go and see him tomorrow and we'll organise everything then. Myself: Okay. 25 The first appellant's version of this conversation was as follows: I showed Mr Gouramanis, Mr Klimis and Mr Vaitsis to a spare office. We all sat down and the following conversations took place: Giourtalis: I'm only here to listen and to write down what you have to say. I'm not here to give you any advice. You're all here to resolve it yourselves. I just want you to sort whatever the problem is out amicably and I will record it for you. Vaitsis: I want my money or else I want shares in the company. Klimis: I'm prepared to give him 49 shares. Vaitsis: Klimis owes me money and I want 50 shares. Klimis: I'm prepared to give him 49 shares but I want to keep one share. Vaitsis: No I want the 50 shares. Klimis: Gouramanis why don't you give him one share. Gouramanis: Should I give him a share? (to Mr Giourtalis) Giortalis: That's up to you if you want to give him a share. Gouramanis: OK. I'll give him a share. Vaitsis: I'm owed $150,000. Klimis: Its only $100,000. Vaitsis: $50,000 for interest. I want my money or I want 50% of the business or else. Klimis: I agree with this. Do you agree Gouramanis too? Gouramanis: OK. 26 The accountant then prepared a Deed which was signed by the respondent and the two borrowers on 30 December 1999 ("the December Deed"). The Deed stated: 1. Mr John Vaitsis has over the period January 1999 to 30th December 1999 loaned an amount of ONE HUNDRED AND FIFTY THOUSAND DOLLLARS ($150,000) to AAANG Holdings Pty Ltd, being provided for the purposes of working capital. 2. In consideration for the amount of $150,000.00 the directors of AAANG Holdings Pty Ltd have agreed to issue an amount of FIFTY PERCENT (50%) to Mr John Vaitsis of the total Shareholding of AAANG Holdings Pty Ltd. 3. In consideration for the debt owing to Mr John Vaitsis, the directors have agreed to appoint Mr John Vaitsis a Director of AAANG Holdings Pty Ltd. 4. In consideration of the debt owing to Mr John Vaitsis, the amount of $150,000.00 shall recorded as a loan account due to him by AAANG Holdings Pty Ltd, together with the loan accounts of the other directors. Events of 2000 27 In early January 2000 the Bar owners told the respondent that the Bar was in financial difficulty. On their behalf, the accountant asked for an additional $50,000 loan which the respondent refused (Red 130). 28 There were other early indications of AAANG's financial difficulties, including the fact that the respondent's agreed wages for working at the Bar stopped around 31 December 1999 (Blue 1/74, Red 153J). 29 A number of meetings and dealings took place in the first half of 2000. Some occurred without the knowledge of the respondent. Some were found to involve additional breaches of duty by the appellant (Red 147-8). The appellants do not attack these specific findings, but point to the absence of evidence that any additional loss or damage stemmed from the events of early 2000. No further money was advanced by the respondent in this year. 30 The accountant agreed that he sat in on a number of meetings, "taking notes", in the first half of 2000. He said that there were a lot of arguments that nearly ended in punch-ups. At one meeting held on 16 February 2000 it was agreed that the value of the respondent's shares in AAANG were $220,000 (Blue 89, Red 130). 31 The respondent resigned as a director of AAANG on about 1 June 2000 when he became aware that the company was unable to repay its debts. 32 Eventually the Bar was sold in late November 2000. The sale proceeds were distributed as to $165,000 to Mr Gourmanis, as to $130,000 to creditors and as to $5,000 to legal costs. The respondent got nothing apart from Mr Gourmanis' personal post-dated cheque for $100,000 which was dishonoured on 9 April 2001. AAANG was wound up that month. The respondent has been unable to recover any money from the company. 33 I now address the six previously identified issues. The first four overlap to a degree. 1. Impact of promise to pay $20,000 interest on the $100,000 advance 2. Alleged advance of additional $50,000 between July and December 1999 3. Loss stemming from entry into Deed of December 1999 4. Alleged further advance of $70,000 in February 2000 34 These issues focus upon the following passage in her Honour's reasons. The judge held (Red 151-2): Damages Loan The defendants submitted that the plaintiff could not establish any loss because, before AAANG was placed in liquidation, the plaintiff had surrendered the value of his "worthless security" by assigning his shares to the third defendant. I do not accept this submission. I am not persuaded that this subsequent transfer is relevant to the plaintiff's causes of action. I am satisfied that the plaintiff has shown he has lost the moneys advanced as a consequence of the actions of the first and second defendant. I am further satisfied that the plaintiff has shown that the loss has resulted from the breach of fiduciary duty, negligence and breaches of the Fair Trading Act 1987 and Trade Practices Act 1974 by the first and second defendants. There is conflicting evidence as to the amount of the Souvlaki Bar loan. I infer that at the time the December Deed was signed all of the parties had agreed that it stood at $150,000.00. I also infer that at the time the general meeting of AAANG was held on 16 February 2000 the parties had agreed that it stood at $220,000.00. I am accordingly satisfied that, as at 16 February 2000 the parties had agreed that the amount payable under the loan stood at $220,000.00. 35 The common theme, and starting point for addressing these four issues, is that the only moneys ever paid over by the respondent were the $100,000 dispersed in July 1999 and the $20,000 claimed in the Jayz invoice (as to which there is no longer any dispute: see above). 36 While the balance of what was known as the Souvlaki Bar loan rose, by agreement, to $150,000 on about 29 December 1999 and to $220,000 by February 2000, these sums were no more than figures that the parties agreed were outstanding at the relevant times by the Bar owners and/or AAANG to the respondent. There is indeed some uncertainty as to the agreed basis of the $220,000 figure. The evidence suggests that this was the agreed value of the respondent's interest in AAANG at the time, rather than the balance of a loan account. 37 The primary judge inferred that the agreement to pay $20,000 interest on the original loan was superseded by the agreement reached in February when the balance outstanding was agreed to be $220,000. On this basis, having decided that $220,000 was lost due to the appellants' breaches, her Honour declined to include the $20,000 interest as a separate head of damages. This finding as to the $20,000, which is not challenged by the respondent, meant that the judge did not have to consider an alternative question whether the $20,000 interest was also taken up in the $150,000 agreed balance of the loan amount as at 29 December 1999. Since I am unable to see how the respondent's inability to recover the $220,000 can be laid at the appellants' door (see below) it falls to me to resolve the alternative question if it is a live one. 38 I would draw the same inference in relation to the December agreement as the trial judge did in relation to the February 2000 agreement, namely that the $20,000 agreed interest was subsumed into the balance of the loan then struck. In my view, only the lost $150,000 (plus statutory interest) can be recovered from the appellants in the causes of action under consideration. To permit the respondent to recover the lost $150,000 (plus interest at court rates) as well as the lost $20,000 "interest" would give double recovery. 39 The agreed sums of $150,000 and $220,000 remained unpaid by AAANG, but this (according to the appellants) shows no more than the failure of attempts to mitigate the loss stemming from the original loan that subsequently become irrecoverable. The appellants submit that the Bar owners provided the respondent with a series of replacement rights that were worthless, but without further breaches on their part and/or in circumstances where any further breach had no causative effect. 40 I have indicated already that there is no finding that (leaving aside the Jayz invoice) the respondent paid any money beyond the $100,000 obtained from his parents in July 1999. Nor is there any cross appeal or notice of contention seeking such a finding. The highest that the facts go as at 29 December 1999 was that the Bar owners then agreed that they owed the respondent $150,000 in circumstances that must have subsumed any additional obligation to pay the $20,000 previously agreed "interest". This confirmation of the state of the accounts as at 29 December 1999 occurred as the prelude to signing the December Deed and the other transactions that extinguished the personal liability of the Bar owners and, by process of novation, introduced AAANG as a debtor owing that sum. 41 The differing affidavit evidence about why the loan moved from $100,000 to $150,000 was not seriously explored in cross-examination. At trial, all four defendants were represented by the same counsel and at the end of the day there was no dispute but that the respondent and the two Bar owners agreed that the latter owed the respondent $150,000 as at the end of December 1999. What is unclear and now of possible significance is whether the agreed increase in the balance of the Souvlaki Bar loan from $100,000 to $150,000 was the consequence of further advances between July and December 1999 totalling $50,000; further advances totalling $30,000 to which was added the agreed $20,000 interest that was then due; some more global agreement stemming perhaps from the fact that the respondent had been working in the Bar possibly without payment of wages from July 1999 onwards; or some alternative basis. The cross-examination of the two witnesses was unprobing and little attention was paid to the principles stemming from Browne v Dunn. 42 The credibility of the accountant, Mr Giourtalis, was not viewed favourably by the trial judge, but there were no findings referable to this particular issue. Mr Giourtalis' recollection was that the respondent said that he was owed $100,000 plus interest, claiming $150,000 in total (Blue 115, Black 151-2). The probabilities strongly suggest that any agreement that the debt had risen to $150,000 must have encompassed allowance for the still unpaid $20,000 interest component on the original $100,000 advance. 43 The trial judge may not have been asked to address or resolve this particular issue. What she did decide – and it is well supported by the evidence – was that it had become common ground as between the Bar owners and the respondent that the former owed the latter $150,000 as at the end of 1999. The Bar owners indicated that they were unable to pay that sum "by the due date" (second further amended statement of claim, par 34). 44 The accountant, who was privy to these discussions, nevertheless told the respondent that the money was coming and, in response to a request for security, said: We are working on a new arrangement between you and Mr Gourmanis and Mr Klimis and a company that I bought some time ago known as AAANG. 45 The respondent was persuaded to enter into the December Deed and other transactions having the effect of releasing the Bar owners' personal indebtedness, obtaining AAANG's acknowledgement that it owed the respondent $150,000, giving the respondent fifty percent of the issued capital of AAANG, and appointing the respondent a director of that company. Implicit in these arrangements was the transfer of the business to AAANG, if this had not already occurred. 46 The respondent's evidence, accepted by the judge (see esp Red 149), was that he was induced to sign the December Deed by the following statement of the accountant: If you enter into the Deed you will get your money back. You will not have to pay their bills from the past. Also your money will be safe. It will be returned to you as soon as the Souvlaki Bar is sold or Mr Gouramanis and Mr Klimis take the business back. I think you should sign the Deed because your interests will be protected, free from any encumbrance in a newly formed company that I will start for you. For the time being you will be given a 50% holding in AAANG. Then we can move that interest into a new company. The Souvlaki Bar loan moneys are secure. Its worth on the open market the sum of $300,000 and so you will always be able to get your money back…I promise you will be alright in this new arrangement. 47 This conversation is described as the Fourth Representation. Like the third representation, it was pleaded as a continuing representation. A claim to have lost $150,000 as at December 1999 was clearly pressed in final submissions at trial (Black 434). 48 The accountant denied the conversation and also that he provided any advice to anyone at the meeting. The trial judge rejected these denials. Her Honour found (at Red 140) that the accountant: · made each of the Third and Fourth Representations asserted by the plaintiff; · offered to act as the plaintiff's accountant; · assured the plaintiff that he was aware of the financial position of the third and fourth defendants and that they would be able to repay the Souvlaki Bar loan. · gave ongoing assurances as to the financial viability of the Souvlaki Bar; · advised the plaintiff to enter into the Souvlaki Bar loan and the December Deed; · had knowledge of the financial affairs of the Souvlaki Bar and AAANG. 49 These findings (and others at Red 144-5, 149, 151-2) concluded that the appellants breached duties owed to the respondent and that the respondent acted to his detriment in relying upon the fourth representation and the advice given by the first appellant in December 1999. The key detriment was extinguishment of the personal liability of the Bar owners and the substitution of the ultimately worthless rights as creditor and shareholder of AAANG (Red 145, 150-2). 50 The judge viewed the fourth representation as independently operative. It was also seen as reinforcing the dangerous impact of the misleading and deceptive advice of July 1999. The appellants' concessions in this Court balk slightly at carrying forward these findings to December 1999. But if and to the extent that breach of duty causative of loss is not conceded as regards December 1999, I am comfortably satisfied as to the correctness of the judge's conclusions in this regard. Nothing had changed between July and December to remove the impact of the conceded July breaches. They were reinforced by the fourth representation of December 1999. 51 The accountant's conduct of December 1999 led the respondent to release the Bar owners from personal liability. This was a further compensable detriment if and to the extent that the respondent gave up valuable rights. 52 Balla DCJ regarded the respondent's inability to recover the agreed $150,000 from the already insolvent AAANG as damage stemming (at least in part) from the appellants' breaches of duty. I agree, all the more so in light of the appellants' concessions as regards the July transaction. 53 The case appears to have proceeded throughout on the basis that the Bar owners had means to repay the Bar loan (at least in 1999-2000) notwithstanding their lack of ready funds during this period. The appellants' now conceded liability as to $100,000 plus interest stemming from July 1999 reinforces this assessment, in my view. True, the concession treats the money paid to the Bar owners in July 1999 as "lost" in light of the totality of the events, events that included the insolvency of AAANG and the proven failure of Mr Giourmanis to honour his post-dated cheque for $100,000 that he gave the respondent in November 2000. (For some inexplicable reason, that transaction was not made the subject of an independent claim in the proceedings. Had it been so, the December 1999 Deed would have offered no defence. There may, of course, have been other defences or good reasons why there was no claim on the dishonoured cheque.) 54 Mr Giourmanis' dishonouring of the cheque in April 2001 did not establish the inability of the Bar owners in 1999-2000 to repay the "Souvlaki Bar loan". There was independent evidence that the Bar owners each owned their own home during this period. The admissions inherent in the appellants' own representations also provided evidence of the Bar owners' capacity to repay the agreed $150,000 (albeit not on the spot). 55 In February 2000 there was a meeting of the four men in which, on one view of the matter favourable to the respondent, it was agreed that the AAANG debt had by then risen to $220,000. There is no evidence and no finding that this additional $70,000 increase was the product of any further advance on the respondent's part. Indeed, there is uncontradicted evidence that the respondent refused in January 2000 to make a further advance of $50,000. It may well be that the parties agreed that the "Souvlaki Bar loan" had risen to $220,000 because that represented a fair sum given that the December debt remained unpaid, the respondent was not paid wages in January and AAANG was by then obviously in financial difficulties. It is unnecessary to resolve this matter, because the burden of establishing that an additional $70,000 was advanced rested upon the respondent. There was no evidence or finding that this or any other sum was paid in the early months of 2000. 56 Of greater significance is the absence of any finding that the agreement of February 2000 was the product of the respondent's continued reliance upon the advice given by and representations made by the appellants in breach of their duties. The respondent became aware of AAANG's financial difficulties in January 2000. In these circumstances, one would not lightly assume that any act or omission on the appellants' part during this later period would have contributed further to the respondent's loss. 57 It follows, therefore, that the respondent's subsequent inability to recover $220,000 from AAANG or his fellow shareholders cannot be laid at the door of the appellants. 58 In these circumstances, I conclude the analysis of the four issues by finding that the damage suffered by the respondent in consequence of the appellants' breaches of duty was $150,000 as at 29 December 1999. This sum should bear interest at District Court rates to the date on which judgment was entered in the District Court (22 November 2005). 5. Lost wages claim 59 One component of the damages award challenged on appeal is referred to as the "lost wages claim". 60 The trial judge found the appellants liable for $30,450 (together with interest thereon) for non-payment of the respondent's wages in the period 1 January to 1 June 2000. Her Honour's reasons were: Loss of wages The plaintiff claims the sum of $70,700 calculated on 32 weeks at $1,600 and 15 weeks at $1,300, making allowance for his fluctuating hours over the period. There were a number of alternative submissions advanced by the defendants: • the lodging of group certificates by the plaintiff and his claim for a taxation refund means that he was paid. • any claim for loss of wages could only be made against AAANG as the employer. • the evidence as to the unpaid periods was conflicting and there was no evidence of any wage rate. In relation to the claims based on the taxation refund, these are for the financial years ending 30 June 1998 and 1999. There is some force in the argument that this claim can only be made against the plaintiff's employer. However, on balance, I am satisfied that the plaintiff continued to work at the Souvlaki Bar because of his involvement in the business and so the loss has resulted from the breach of fiduciary duty, negligence and breaches of the Fair Trading Act 1987 and Trade Practices Act 1974 by the first and second defendants. I accept that there is conflicting evidence as to the periods off work. On one occasion the plaintiff said that he had continued to work in the business but had not been paid from 7 July 1999 to 1 June 2000. On another occasion he said that three weeks after signing the December Deed he noticed that he had not been paid. It is accordingly more likely that his wages stopped around 31 December 1999. In view of his irregular hours I am satisfied that the loss should be allowed at $1,450 being the midpoint between the wage for 5 and 7 days a week. I allow the sum of $1,450 per week for the period from 1 January 2000 to the date on which the plaintiff resigned as a director being 1 June 2000 and the date on which he ceased working at the Souvlaki Bar (21 weeks), which is $30,450.00. 61 In the District Court the respondent had sued the two appellants and the two Bar owners. 62 The Statement of Claim computed the damages claims as follows: Damages: Against First and Second Defendants [the appellants] : Souvlaki Bar Loan $150,000 Interest on Souvlaki Bar loan $ 20,000 Less First Loan $ 10,000 Less Second Loan $ 20,000 Reimbursement of all fees and charges paid in respect of the Second and Third Retainers Not known Total $140,000 Against Third Defendant: Souvlaki Bar Loan $150,000 Interest on Souvlaki Bar Loan $ 20,000 Second Loan $ 9,000 Unpaid wages $ 50,000 Unpaid dividends from the December Deed Not known Total $229,000 Against the Fourth Defendant: Souvlaki Bar Loan $150,000 Interest on Souvlaki Bar Loan $ 20,000 Unpaid wages $ 50,000 Unpaid dividends from the December Deed Not known Total $220,000 63 It can be seen that the damages claimed against the appellants did not include a claim for unpaid wages, in contrast to the claims against the Bar owners. The Bar owners sought to meet that claim, in part, by contending that the respondent was employed by AAANG and in part by relying on the December Deed. The two appellants took the point that any claim for lost wages could only be made against AAANG (undoubtedly the employer in 2000). The trial judge acknowledged this point in the passage set out above, but held that she was satisfied that the respondent continued to work at the Souvlaki Bar "because of his involvement in the business and so the loss has resulted from" the appellants' breaches of duty. 64 I have already mentioned the possibility that the Bar owners may have agreed that the debt stood at $150,000 as at the end of December 1999 for reasons that included the non-payment of wages up to that date. If this is so, it does not help the respondent because any claim for lost wages covering this period would overlap with the claim to recover loss stemming from of the eventual irrecoverability of the $150,000 agreed to be paid by the Bar owners as at 29 December 1999. In any event, the judge only awarded wages lost in 2000. 65 In my view, the judge's award for lost wages cannot stand. Such a claim was never pleaded against the appellants. Nor was it pressed in final submissions (see Black 2/354-5). Nor were vital issues of causation referable to this loss explored in the evidence. The finding that the respondent "continued to work at the Souvlaki Bar because of his involvement in the business" is both unduly vague and inadequate to ground this component of the damages. It does not identify the relevant breach and it fails to specify the matters relevant to causation that would justify the award against the appellants. The direct cause of the putative loss was the employer's (AAANG's) non-payment of wages. By early 2000 the respondent knew as well as the appellants that the Bar owners were in financial difficulties. 6. Offsetting of interest referable to $30,000 loan to respondent 66 The parties agree that the $30,000 lent to the respondent in February 1999 must be netted off against the $100,000 loss incurred by the respondent in consequence of the improvident transaction that commenced in July 1999. The respondent made this concession at an early stage in the appeal (Orange 79, 85). 67 There is, however, disagreement as to one aspect of interest calculations referable to this netting off. 68 The appellants submit that a conservative approach (from the respondent's perspective) is to assume that interest runs on the netted out sum of $70,000 at court rates from at least July 1999. This is generous to the respondent because the $30,000 loan was made on 17 February 1999, interest was payable under it at the contractual rate of 10% (13% in default), and no interest was ever paid. 69 I do not understand the appellants to press their earlier objection to this proposal. It strikes me as eminently reasonable. Disposition 70 Judge Balla delivered her reasons on 11 November 2005 and made final orders on 22 November 2005. 71 Her Honour entered judgment against the first defendant, Mr Giourtalis in the sum $417,753 made up as follows: Moneys payable under the loan $220,000 Loss of wages $ 30,450 Refunded Jayz Invoice $ 20,000 Total of those matters $270,450 Interest on $270,450 $147,303 Total $417,753 72 Judgment in the sum of $430,325 was entered against Ramace Pty Ltd. It included the said $417,753 and an additional sum of $12,572 in relation to the plaintiff's claim for the return of the balance of certain tax refunds on the 1998/1999 tax assessments. This award of $12,572 included an interest component (at court rates) totalling $4,821. 73 It will be necessary for the judgments to be varied, in accordance with these reasons, and for interest at court rates to be calculated to the date when judgment was entered below, ie 22 November 2005. 74 The "capital" sum lost by the respondent in consequence of the appellants' breaches of duty was $150,000 as at 29 December 1999. 75 The interest calculation needs to be done as proposed by the appellants, on the basis that the $30,000 loan to the respondent in February 1999 is to be netted off against the $100,000 advance on 9 July 1999. (The loan was from the second appellant, but all parties are agreed that this netting off can be made in favour of both appellants.) 76 The resultant $70,000 should carry interest at District Court rates to 22 November 2005. 77 The appellants' liability with respect to the Jayz Invoice ($20,000) stands and it too should carry interest at court rates to 22 November 2005. 78 The deduction of the $30,000 loan from the original advance of $100,000 was done for the purpose of interest calculation on the netted off sum. The respondent is, however, entitled to recover the additional $50,000 that the Bar owners agreed was owing as at 29 December 1999 but which was also lost to the respondent in consequence of the novation arrangements that occurred the following day. This additional $50,000 "capital" loss should carry interest at court rates from 29 December 1999 to 22 November 2005. 79 As indicated, the appellants should pay the respondent's costs in relation to the written submissions. The appellants should not recover the costs of their own written submissions, but should otherwise have the costs of the appeal. The respondent is entitled to a certificate under the Suitors' Fund Act. 80 The order for costs in the plaintiff's favour made at trial should not be disturbed. 81 I therefore propose the following orders: 1. Appeal allowed. 2. Direct appellant to file orders giving effect to the reasons of the Court, such orders to be filed on or before 2 February 2007. There should be liberty to apply in the event that agreement is not reached as to the final orders. 82 HODGSON JA: I agree with Mason P that the appeal should be allowed, and that the damages awarded to the appellant should be substantially reduced. I agree with much of his reasons: however, I do not agree with pars.[38], [43], [52], [54], [58], [74] and [78] of his judgment, and in my opinion the damages awarded to the respondent should be a little less than proposed by Mason P. 83 My disagreement concerns the first three issues identified in par.[22], and the substance of it is that I am not satisfied that, in relation to these issues, the respondent is entitled to more than money actually advanced by him plus interest at District Court rates. This is because, in my opinion, the loss of $20,000.00 interest was not caused by the appellant's breach of duty, and because the respondent did not prove loss resulting from entry into the December Deed. 84 The respondent's claim based on the July representation was to the effect that, but for the representation, he would not have advanced $100,000.00; and it follows that therefore he would not have become entitled to interest of $20,000.00 after six months, that is, at a rate of about 40% per annum. He is however entitled to interest at District Court rates. 85 The respondent claims to have made further advances, still in reliance on the July representation, between July and December 1999; and to the extent that such further advances were proved, he is entitled to recover them plus interest at District Court rates. 86 As was noted by Mason P in pars.[40]-[43], the issues as to what if any further advances were then made was not resolved by the primary judge. In my opinion, any such further advances could not have exceeded $30,000.00, because the overwhelming probability is that the agreed interest of $20,000.00 was included in the agreed sum of $150,000.00 arrived at in December 1999. 87 Despite the unsatisfactory nature of the respondent's evidence as to further advances (see par.[24]) and the lack of cross-examination on both sides (see par.[41]), I think the admission constituted by the December Deed prepared by the appellant, coupled with the adverse credit finding against him, is sufficient to justify a finding, on the balance of probabilities, that the respondent did advance a further $30,000.00. On that basis, what the respondent would be entitled to, based on the July representation, would be $100,000.00 with interest from 9 July 1999 and $30,000.00 with interest from 29 December 1999. 88 To show that additional loss was suffered by reason of entry into the December Deed would require a finding that, but for entry into that deed, the respondent would have recovered the agreed $20,000.00 interest, as well as the $130,000.00, from the Bar owners; and in that event, he would have lost, through entry into the December Deed, the $15,000.00 or so by which the agreed interest of $20,000.00 exceeded interest at District Court rates. 89 Despite the evidence that the Bar owners each owned their own home, and admissions inherent in the appellant's representations, I would not be satisfied that the respondent proved this, in circumstances where he obtained a personal claim against Mr. Gioumanis for $100,000.00 in November 2000 and did not pursue it in these proceedings, and obtained a personal claim (or at least a strongly arguable claim) against Mr. Klimis for $150,000.00 in June 2000 (Blue 154) and did not pursue it in these proceedings. 90 The failure to pursue these personal claims was not relied on as failure to mitigate in relation to the claim based on the July representation (in respect of which the onus of proof was on the appellant); but in relation to proof of loss by reason of the December Deed, due to the giving up of rights against these individuals, the onus of proof was squarely on the respondent, and in my opinion he did not discharge this onus where, quite soon afterwards, he re-acquired rights against them which he did not pursue. 91 For those reasons, I would substitute $30,000.00 for $50,000.00 where it appears in par.[78]; and would otherwise agree with what Mason P proposes. 92 IPP JA: I agree with Mason P. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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