Supreme Court New South Wales Medium Neutral Citation: Holstein v RTS Super Pty Ltd [2012] NSWSC 346 Hearing dates: 13 and 14 March 2012 Decision date: 10 April 2012 Jurisdiction: Equity Division Before: Gzell J Decision: Restitution granted. Catchwords: INTEREST- Recoverability of interests - whether loans made - restitution - recovery of interest on refinance to repay alleged debt - question of fact only Category: Principal judgment Parties: Maxim Joseph Holstein (First Plaintiff) Kim Holstein (Second Plaintiff) RTS Super Pty Ltd (Defendant) Representation: Counsel: P Gormly (Plaintiffs) M Izzo (Defendant) Solicitors: MacLean & Curtis Solicitors (Plaintiffs) Stacks/Business (Defendant) File Number(s): SC 2009/290601 Judgment Introduction 1The dispute in this case is over $52,000.00 that the defendant, RTS Super Pty Ltd, alleges was lent to the plaintiffs Maxim Joseph Holstein and Kim Holstein. The Holsteins say they never received loans totalling that amount and nor did they direct that payments totalling that amount be made to third parties. 2Raymond Thomas Stack practised as a solicitor in Taree, New South Wales under the name Stacks The Law Firm. Mr Stack is a director of RTS Super, the trustee of a superannuation fund for himself and his wife. The history 3The Holsteins needed to refinance a mortgage over their property at Nowendoc, New South Wales. Stacks Managed Investments Ltd trading as Stacks Finance lent them $400,000.00. 4Some time later, the Holsteins wished to purchase an adjoining property and sought a loan of $400,000.00 from Stacks Finance, $350,000.00 to buy the property and $50,000.00 for running costs. 5Stacks Finance would only lend $250,000.00 but Mr Stack lent the Holsteins $100,000.00 from RTS Super to cover the cost of the property. 6Before settlement of the purchase, Mr Holstein asked Mr Stack for a further $50,000.00 urgently and Mr Stack obliged with a loan of $58,000.00 on 21 September 2001 also from RTS Super. The $8,000.00 was to cover all expenses including those in relation to the $250,000.00 loan from Stacks Finance. 7The Holsteins had only one bank account into which all receipts were banked and from which all expenses were paid. Their bank statements show the receipt of $50,000.00 on 5 October 2001. The purchase of the adjoining property settled on 30 November 2001 and the $250,000.00 loan from Stacks Finance together with the $100,000.00 loan from RTS Super were dispersed in accordance with the settlement statements. 8Mr Holstein said he had a telephone conversation with Mr Stack in June 2002 when he asked for an additional $70,000.00. Mr Stack confirmed a loan from RTS Super of $72,000 including fees of $2,000.00 by letter dated 27 June 2002. 9Mr Holstein said he then realised that he needed $100,000.00 rather than $70,000.00 and he met with Mr Stack on 29 July 2002 when he says Mr Stack agreed to the loan but said he could give him $50,000.00 then with two cheques for $20,000.00 and one cheque for $10,000.00 to come later. 10The banking records of the Holsteins show that $50,000.00 was deposited to their account on 29 July 2002. Mr Holstein said he received two cheques each for $20,000.00 by mail that the bank statements show were deposited to the Holstein's account on 27 September 2002 and 5 November 2002. There was then a direct deposit of $10,000.00 to the account on 24 December 2002. 11Mr Stack said there was a discussion about a $100,000.00 loan but it occurred on 13 June 2002 and not on 29 July 2002. 12But why, if Mr Stack agreed to loans totalling $100,000.00 on 13 June 2002 would he write on 27 June 2002 confirming a loan of $72,000.00 including an establishment fee of $2,000.00 with $50,000.00 payable immediately and $20,000.00 in a couple of months? 13Mr Stack had little independent recollection of events. Without being critical of him, Mr Stack did the best he could to recall events by reference to the documents available to him. His evidence was largely reconstruction. 14Mr Holstein also suffered from loss of memory, but to a lesser extent. He had a recollection of some events and had more extensive records than did Mr Stack. 15Mr Stack destroyed records after seven years and destroyed documents earlier than that if he thought them unimportant. In a move of his office a large number of documents were destroyed. 16Mr Stack's evidence that the conversation about the $100,000.00 loan took place on 13 June 2002 was based on a diary note of that date. It has a reference to "70" with an arrow to "50K" and "20" below that. There is an arrow from the "70" down to "100" with an arrow from it to "30" below the "50K" and the "20." 17The improbability that Mr Stack would write confirming a loan of $72,000.00 if he had on 13 June 2002 agreed to a loan of $100,000.00 leads me to accept Mr Holstein's version of events that his request for $100,000.00 came later and on 29 July 2002. 18Mr Stack kept documents relating to the Holsteins' loans in a manila folder that contained pieces of paper on which he had written notes. The file note of 13 June 2002 is such a piece of paper. 19The explanation for the reference to "100" in it is likely to be that on 29 July 2002 Mr Stack took out his file note of 13 June 2002 and added to it references to a further loan of $30,000.00 to bring the total to $100,000.00 exclusive of fees. 20The parties agree that on 29 July 2002 Mr Stack gave Mr Holstein a cheque for $50,000.00 drawn on one of his companies with further payments totalling $50,000.00 to come later. 21Mr Holstein said he received in the mail a cheque for $20,000.00 on 27 September 2002 and he deposited it in the Holstein bank account that day. 22Mr Stack said he met with Mr Holstein in his office on 26 September 2002 when Mr Holstein asked for $20,000.00 that had been approved and said he would still like to borrow the other $30,000.00 that had been discussed. Mr Holstein denied going to Mr Stack's office. 23Mr Stack said he gave Mr Holstein a cheque for $20,000.00 as a loan of $22,000.00 including the establishment fee of $2,000.00 to which reference was made in the letter of 27 June 2002. 24Mr Stack said he believed that he gave Mr Holstein a further cheque for $30,000.00. He said he did not recall the form in which the payment of $30,000.00 was made but it may well have been that this cheque was made out to a third party at the direction of the Holsteins. 25Mr Holstein denied receiving $30,000.00. There is no record of a receipt of $30,000.00 on 26 September 2002 or immediately thereafter in the bank records of the Holsteins. There is an entry for a deposit of $20,000.00 on 27 September 2002. 26It is a matter of sheer conjecture on Mr Stack's part that $30,000.00 may have been payable to a third party. Both Mr and Mrs Holstein swore that they did not have Mr Stack make payments to third parties at their direction. I have no reason to doubt their evidence. 27In the absence of a payment by direction to a third party of the $30,000.00, there is no logic in Mr Stack having made out two cheques on 26 September 2002, and the likelihood is that the $30,000.00 was not lent to the Holsteins on that day and the extent of the loan on that day was $22,000.00 including the establishment fee of $2,000.00. If there was an advance of $30,000.00 on 26 September 2002 it was to someone other than the Holsteins. Mr Stack's record keeping was such that mistakes were made. 28 A cumulative loan card with respect to the borrowings by the Holsteins was made up by Tania Lee McMullen, a clerk employed by Stacks Financial Services Pty Ltd, from epitomes of mortgage the information for which came from Mr Stack as a rule. She may have got information from other sources occasionally. It was prone to and did contain mistakes. 29It had an entry that on 27 June 2002 the principal of the loans increased to $230,000.00 and that figure was changed to $260,000.00. 30Mr Stack said that these entries were clearly incorrect because as at 27 June 2002 no portion of the $72,000.00 loan had been advanced. He said that his staff probably assumed from the terms of the letter of 27 June 2002 that $72,000.00 had been advanced on that day. 31Mr Stack did not know why the further amendment to $260,000.00 was made. This line on the loan card was struck out. But it may account for the mistaken additional loan of $30,000.00 on 26 September 2002. 32The loan card also noted an increase in the principal sum to $280,000.00 on 29 July 2002. Mr Stack said that this entry was incorrect as the sum advanced to the Holsteins on 29 July 2002 was $50,000.00 and the total stood at $208,000.00. 33Mr Stack had a file note dated 2 October 2002 in which he recorded that Mr Holstein wanted to borrow an additional $30,000.00 to buy a travelling irrigator. Mr Holstein said he had not purchased a travelling irrigator. 34Mr Stack said this file note related to a meeting he had with Mr Holstein on 26 September 2002. But the request for an additional $30,000.00 was not made on 26 September 2002. Mr Holstein said he requested the additional money on 29 July 2002 and on Mr Stack's version it was on 13 June 2002 that the additional $30,000.00 was requested. 35The file note or its date is dubious and I prefer the evidence of Mr Holstein that he received $20,000.00 by mail on 27 September 2002. 36Mr Stack says there was a loan of $20,000.00 made on 21 October 2002. Mr Holstein denies any loan on that date. There is no deposit recorded in the Holstein bank statements on that day. 37Mr Stack said that he met with Mr Holstein on 21 October 2002 when Mr Holstein asked for a loan and he gave him a cheque for $20,000.00. Mr Holstein said he did not go to Mr Stack's office on 21 October 2002. 38I prefer the evidence of Mr Holstein supported as it is by the bank statements. 39The parties agree that a further $20,000.00 was advanced to the Holsteins on 5 November 2002, a further $10,000.00 was advanced on 24 December 2002 and $2,100.00 was lent on 17 May 2004. 40The difference between the parties is $52,000.00, including the establishment fee of $2,000.00, alleged to have been made by Mr Stack on behalf of RTS Super. $30,000.00 was said to have been paid to Mr Holstein on 26 September 2002 and $20,000.00 was said to have been advanced on 21 October 2002. 41As the establishment fee was part of the approval of the loan of $72,000.00 in the letter of 27 June 2002, it seems to me that it is a legitimate debt due to RTS Super. The claim of the Holsteins should be limited to $50,000.00. The mortgage documentation 42The Holsteins were sent two variations of mortgage and an epitome of mortgage in early November 2002. The epitome is dated 21 October 2002. It tabulated loans totalling $300,000.00 including $52,000.00 on 26 September 2002 and $20,000.00 on 21 October 2002. 43Mr Holstein said this was the first occasion any reference was made to a loan of $52,000.00. 44On 4 November 2002, Mr Holstein telephoned Mr Stack and said there had been a mistake on his loan card. He said that after Mr Stack had looked at his file he said: "Yes, I can see what has happened. Two thousand dollars being the draw down fee and the girls thought that I had loaned you a further fifty thousand dollars. I will correct the matter." 45It was put to Mr Holstein that he would have mentioned that he had received $20,000.00 on 27 September 2002. Mr Holstein said he was late for his bus run and only mentioned $52,000 and when Mr Stack said he would correct the matter he hung up and went for the bus. 46Mr Holstein was a careful witness. He considered the questions before answering. It was put to him that he could not remember word for word everything that was said in that conversation. He answered "pretty much". But he agreed that it was possible there were aspects of the conversation he had forgotten. 47Mr Stack's version of the conversation was that he said to Mr Holstein that he had borrowed $72,000.00 on 27 June 2002 to which Mr Holstein responded that that was a mistake because he did not receive $72,000.00 on 27 June 2002. Mr Stack said that having considered the matter, he said: "Yes, the loan card does not seem correct. I will get my staff to review your position and correct the card. So that there is no doubt as to the correct amount lent to you, I will do a new Variation of Mortgage setting out the correct amount and, in the Epitome, I will set out the date of each loan. As I've said before, I do not act for you and you should get independent legal advice regarding the documentation before signing it." 48Mr Stack based his evidence on such recollection as he had and on the entries on the loan card. He agreed that a lot of his evidence was based on piecing together history through the documents. It was put to him that he may well have made a simple error of not recording details of his conversation with Mr Holstein. He said he did not believe so. It was put to him that it could have happened, to which he replied: "Ten years ago anything could have happened, yes." 49The following exchange occurred in his cross-examination: "Q And then the Epitome of Mortgage was sent out to Max which was received in early November showing a first incorrect entry, or the first time the incorrect entry of $52,000 on 26 September 2002? A. That's correct." 50I think, however, that Mr Stack was agreeing that this was the first mention of $52,000.00 rather than that it was incorrect. 51In my judgment Mr Stack had no independent recollection of the conversation of 4 November 2002 and reconstructed his testimony from the mistake on the loan card with respect to the date upon which $72,000.00 was advanced. 52But the complaint was not about the $72,000.00. There was nothing in the epitome of mortgage that referred to a loan of $72,000.00 or the date upon which it was thought to have been made. What the epitome revealed for the first time was an alleged loan of $52,000.00 on 26 September 2002. That was the subject of Mr Holstein's complaint. The conversation was about that mistake. 53I prefer the evidence of Mr Holstein as to the terms of the conservation on 4 November 2002. 54The epitome of mortgage dated 21 October 2002 contained reference to a loan of $20,000.00 on 5 November 2002. This was after the conversation with Mr Stack on 4 November 2002, which is established from Mr Holstein's telephone records. The epitome could not be dated before 5 November 2002 because the parties are in agreement that a $20,000.00 loan was made on that date. 55The issue date is clearly in error. It must have been some earlier document that drew Mr Holstein's attention to an alleged loan of $52,000.00 on 26 September 2002. The parties agree that Mr Holstein telephoned Mr Stack and complained that a loan had not been made on a particular date. 56The Holsteins received and signed variations of mortgage that nominated the principal sum at $300,000.00 and at $310,000.00 respectively. In the former they initialled a change in the principal sum from $242,000 to $300,000. Those figures could only be correct if the alleged loan of $52,000 had been made. 57Mr Holstein said he did not challenge the documents because he trusted Mr Stack to do as he had said he would. 58The latter variation of mortgage was forwarded to the Holsteins under cover of a letter of 13 December 2002 in which Mr Stack stated that the further advance of $10,000.00 would bring the total of the loans to $310,000.00. Mr Holstein did not complain about this letter. He expected Mr Stack to remedy the situation. 59Mr Holstein is a man of limited education who had a good personal relationship with Mr Stack. I accept his evidence that he believed that Mr Stack would remedy the situation and he was prepared to sign any document required of him in the mean time. 60The Holsteins received a further epitome of mortgage dated 6 January 2003 for total loans of $310,000.00. It continued to show the alleged $52,000.00 loan on 26 September 2002. Mr Holstein gave the same reason for not challenging this document as applied to the variations of mortgage. He trusted Mr Stack to remedy the situation as he had promised. 61Ms McMullan testified to a conversation with Mr Holstein on 13 December 2002 in which she told Mr Holstein that he had already borrowed $300,000.00 when he said he thought that the further loan of $10,000.00 would take him up to $300,000.00. 62Mr Holstein was clearly wrong about that. But it does not cause me to doubt his evidence that $52,000.00 was not lent to him on 26 September 2002. He received $20,000.00 only on 27 September 2002. Balance sheet 63It was submitted on behalf of RTS Super that a schedule to its balance sheet for the year ended 30 June 2003 showing an increase in the loans to the Holsteins from $158,000.00 to $310,000.00 was contemporaneous evidence in support of the claim of RTS Super. 64It is not in issue that the assets of RTS Super were disclosed as including the $52,000.00 alleged loan. That was what was in the loan card. 65The contention of the Holsteins is that $52,000.00 should never have been entered in the loan card and, in consequence, included in the assets of RTS Super. Estoppel 66It was submitted that the Holsteins were estopped from contending that a $52,000.00 loan was not made because, by executing and initialling the variations of mortgage and authorities to vary a bill of sale and stock mortgage, they conveyed the impression that there was no longer any doubt about the principal sum that was owed. 67I reject that submission. The Holsteins took a simple approach to the matter. Mr Stack was a friend. He said there had been a mistake and he would fix it. Mr Holstein trusted him to do so and, in the mean time, albeit over a six-year period, the Holsteins made no complaint. 68The Holsteins paid out the RTS Super loans on 3 October 2008 by a loan from the Commonwealth Bank of Australia. Mr Holstein complained that the $52,000.00 mistake had not been rectified one month later. Mr Holstein explained that he did not wish to jeopardise the CBA loan and decided to finalise it before raising the matter with Mr Stack. 69In my view, Mr Stack was aware that there had been a mistake in the entry in the epitome of mortgage of $52,000.00 on 26 September 2002. He said he would fix it. He did not. There was no evidence to link that failure to any actions by the Holsteins. Interest rate 70There was a dispute as to whether the Holsteins should be charged interest at 12% or at 15%. 71Mr Holstein said that he had an agreement with Mr Stack that he merely had to indicate that a payment would be late and Mr Stack would ensure that interest was charged at 12%. Mr Stack denied such an agreement. 72Exhibit 1 contains a calculation of the total amount due on settlement on 3 October 2008 of $478,162.37. Interest is charged at 12% except after 24 December 2002 when it is raised at 15%. 73In my view it was appropriate for RTS Super to raise the interest rate to 15% from that date. The last payment by the Holsteins prior to that date was on 26 September 2002. Findings 74The mortgage documentation and the balance sheet of RTS Super do not cause me to doubt the evidence of Mr Hostein that I have preferred over the evidence of Mr Stack. 75I find that there was no additional loan of $30,000.00 made to the Holsteins on 26 September 2002 or any other date material to these proceedings. 76I find that there was no loan of $20,000.00 made to the Holsteins on or about 21 October 2002. Damages 77The loans from RTS Super were refinanced on 3 October 2008. As at that date the payout figure was calculated to be $478,162.37. This calculation was made upon the basis of a loan of $52,000.00 on 26 September 2002 rather than $22,000.00 on 27 September 2002 and a loan of $20,000.00 on 21 October 2002. 78On 21 August 2008 Mr Stack wrote to the Holsteins drawing their attention to the payout figure and stating: "We further confirm that provided however this loan is repaid within six (6) weeks from today, the Mortgagee, RTS Super Pty Limited, will accept $408,800.00 in full and final settlement." 79On settlement $409,300.00 was paid to RTS Super. The discrepancy of $500.00 is for legal costs on the discharge of the mortgage. 80It was submitted that in paying out $409,300.00 rather than $478,162.37 the Holsteins settled any claim they had against RTS Super and they were not entitled to maintain their present action. 81Mr Holstein said that he had a problem with the payout figure but the CBA was pressuring him to provide documents for their loan and he decided it was better not to jeopardise the CBA application and to pay out RTS Super before he made any further attempt to correct the amount of money it was owed. 82It was put to Mr Stack in the cross-examination that "in full and final settlement" was a fairly legal term often referred to in litigation but that Mr Stack was talking about full and final settlement of the actual loan. He agreed with this distinction. There was no evidence that the Holsteins took legal advice on what was meant by the phrase. 83The Holsteins sue for restitution based upon unjust enrichment alleging that RTS Super received a benefit at their expense and it would be unjust to allow it to retain the benefit. 84To deny the remedy on the basis of a phrase in a letter that did not warn the Holsteins of what the writer thought it meant and without encouraging them to seek independent legal advice would be unjust. And it would be unjust for RTS Super to retain the benefit it received at the expense of the Holsteins by reliance upon the phrase. 85I find that by paying $409,300.00 to RTS Super on settlement of the refinance the Holsteins were not precluded from maintaining this action for damages, restitution, or equitable compensation. 86It was submitted on behalf of RTS Super that if the Holsteins succeeded in showing that $52,000.00 was not advanced and they were not precluded by accepting the offer in the letter of 21 August 2008 from seeking relief, credit should be given to RTS Super for an alleged $68,862.37 discount that RTS Super was said to have given, being the difference between $478,162.37 and the actual payment of $409,300.00. 87The calculation in exhibit 1 that led to the total amount due on settlement on 3 October 2008 of $478,162.37 was recalculated on the basis that there was no additional loan of $30,000.00 on 27 September 2002 and no loan of $20,000.00 on 21 October 2002. Mr Izzo of counsel for RTS Super handed up the recalculation, which I will admit as exhibit 5. 88It arrives at a total amount due at settlement of $375,934.88 and as $409,300.00 was paid at settlement there was an overpayment of $33,365.12 with interest until the first day of trial increasing the amount to $40,062.83. No discount was given and there is no basis for a credit to RTS Super in the calculation of damages. 89A calculation was made by Ms Gormley of counsel on behalf of the Holsteins that I will admit as exhibit C. It was criticized in three respects. First, that the calculation was based on $52,000.00 and not $50,000.00. That criticism is sound. As I have said the $2,000.00 was the establishment fee on the approved loan of $72,000.00. 90Secondly, interest was calculated from 26 September 2002 when it should have been on $30,000.00 from 26 September 2002 and on $20,000.00 from 21 October 2002. That criticism is also sound. 91The third criticism was that it omitted to give credit for the discount. But there was no discount. 92In my view the damage sustained by the Holsteins at settlement of the refinance on 3 October 2008 was the overpayment established in exhibit 5 of $33,365.12. That is the amount they would not have been required to pay on settlement if the calculation had not included an additional loan of $30,000.00 on 26 September 2002 and a loan of $20,000.00 on 21 October 2002. 93If the additional alleged loans had not been included in the calculation, the Holsteins would not have had to raise $33,365.12 from the CBA and would not have had to pay interest on it to the CBA. 94Exhibit C sets out the CBA interest rates and periods to which they apply. That exercise should be applied to the $33,365.12 from 3 October 2008 to the date of judgment. The judgment will be for the $33,365.12 plus the interest so calculated. The exhibits and subpoenaed material are to be returned forthwith. 95RTS Super must pay the Holsteins' costs. 96I direct the parties to bring in short minutes of order reflecting these reasons. ********** 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. Decision last updated: 12 April 2012