Supreme Court New South Wales Medium Neutral Citation: Russell and Dunphy v Dunphy [2023] NSWSC 282 Hearing dates: 21 March 2023 Date of orders: 28 March 2023 Decision date: 28 March 2023 Jurisdiction: Equity Before: Hammerschlag CJ in Eq Decision: The Summons is dismissed. See [69]-[70] Catchwords: CONTRACTS – LOAN – DECEASED ESTATE – where a deceased person is alleged to have lent monies to an adult child – requirements to establish the existence of a contract for loan – existence of loan not established Legislation Cited: Evidence Act 1995 (NSW) Limitation Act 1969 (NSW) Cases Cited: Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Boss Constructions (NSW) Pty Ltd v Rohrig (NSW) Pty Ltd [2019] NSWSC 374 Coshott v Sakic (1998) 44 NSWLR 667 Empirnall Holdings Pty Limited v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; [2002] HCA 8 Fischer v Nemeske Pty Ltd [2015] NSWCA 6 Hampton Court Ltd v Crookes (1957) 97 CLR 367; [1957] HCA 28 Heydon v Perpetual Executors Trustees & Agency Co (WA) Ltd (1930) 45 CLR 111; [1930] HCA 26 Joaquin v Hall [1976] VR 788 JP Morgan Australia Ltd v Consolidated Minerals Ltd [2010] NSWSC 100 Ogilvie v Adams [1981] VR 1041 Young v Queensland Trustees Limited (1956) 99 CLR 560; [1956] HCA 51 Category: Principal judgment Parties: Michelle Catherine Russell (First Plaintiff) Brent Patrick Dunphy (Second Plaintiff) Adam Brian Dunphy (Defendant) Representation: Counsel: A Hourigan (Plaintiffs) A Spencer (Defendant) Solicitors: Hedges Legal (Plaintiffs) McLean & Associates Solicitors (Defendant) File Number(s): 2022/00286557 JUDGMENT 1. Elizabeth Anne Dunphy (the Deceased) died on 19 August 2020. Probate of her Will made on 24 August 2018 (the Will) was granted on 7 January 2021. 2. This dispute is between her three children: 1. the first plaintiff, Michelle Catherine Russell; 2. the second plaintiff, Brent Patrick Dunphy; and 3. the defendant, Adam Brian Dunphy. 1. In this judgment, I use a person's first name for convenience. Where I refer to any person by their first name, no disrespect is intended. 2. Michelle and Brent claim that the Deceased lent Adam $126,913 and they seek a declaration that he owes the amount to the Deceased's estate. Given that the three of them are equal beneficiaries to the residue under the Will, the maximum respective economic interest of Michelle and Brent in the amount in dispute is $42,304. 3. Adam is married to Natasha Dunphy. A daughter, Isla, was born in August 2020. 4. The Deceased was in a de facto relationship with Maris Derrick Taylor. They resided at xxxxxxxxxxx, Freshwater (the Freshwater property) owned by the Deceased. The Deceased was an accountant. She worked from a home office. 5. Michelle and Brent are the executors of the Deceased's estate. 6. To date, there have been no distributions. I was informed from the Bar table that the Freshwater property is unencumbered. There is also a significant amount of cash in the estate presently available for distribution. Apparently, an interim distribution is being delayed by reason of this dispute. 7. Under the Will, Maris has the right to reside at the Freshwater property for 5 years following the death of the Deceased or until such time as Maris enters into a de facto relationship, whichever occurs first. On termination of his right to reside, the Freshwater property is to be sold and the net balance divided as to 10% to Maris and 30% to each of Michelle, Brent and Adam. The remainder of the estate is to be distributed as to $750,000 or 25% of the residue, whichever is the greatest, to Maris and the balance in equal shares to Michelle, Brent and Adam. Maris presently resides at the property. 8. There has been previous litigation between these parties in relation to the estate. 9. The Deceased died from cancer on 19 August 2020. When the Deceased was in hospital and the prognosis was dire, Michelle says that the Deceased said that there were a lot of "bits and pieces" in her office and a lot of paper notes. She says that the Deceased told her where her Will was, that she had loaned money to "Adam as well", and that he was the "other one" that owed her quite a bit of money. She says the Deceased directed her to a cork board on the floor next to her desk containing 'post-it' notes and other documents that showed the amounts of loans Adam owed her. 10. It is not in dispute that over some years the Deceased paid money to Adam (and for that matter, to Michelle and Brent). 11. By Summons sued out of the Court on 26 September 2022, the plaintiffs sought declarations that a total sum of $136,213 was lent, as opposed to gifted, by the Deceased to Adam and that the amount is to be offset from his share of the estate. Perhaps, somewhat remarkably, the Summons seeks indemnity costs. It is to be observed that the plaintiffs do not seek immediate repayment of any of the alleged loans. They seek repayment only by way of set off against Adam's entitlement from the estate. 12. Initially, the plaintiffs claimed that the Deceased lent the following amounts to Adam on the following dates: 1. $9,500 on 7 January 2011; 2. $2,000 on 7 January 2015; 3. $3,000 on 13 May 2015; 4. $13,683 by way of payments on 8 November 2015 and 15 February 2016 for the purchase of a black Holden Commodore plus amounts paid to Adam for registration and insurance; 5. $3,300 on 1 June 2018; 6. $1,000 on 13 August 2018; 7. $2,300 on 19 December 2018 to buy tools (the Tools Loan); 8. $2,930 on 12 March 2019 and 29 April 2019 to pay TAFE fees – although as appears below, the plaintiffs accept that Adam repaid $1,500 of this, leaving a balance of $1,430 (the TAFE Loan); and 9. $100,000 on 31 January 2019 to enable Adam (and Natasha) to buy a house at Quakers Hill, a suburb of Sydney (I will refer to this property as Quakers Hill). 1. At the hearing, the plaintiffs abandoned claims numbered (2), (3), (5) and (6) above and $1,500 of claim (8) (the TAFE Loan) leaving a total amount claimed of $126,913. 2. Because of the small amount in contest (even before the abandonment), I ordered, without opposition from the parties, that the trial proceed on oral evidence and that the hearing be conducted on a stopwatch basis to ensure that it concluded within one day. As it happened, it concluded well within the day. Each of Michelle, Brent, Maris, Natasha and Adam gave evidence and were cross-examined. 3. It is apt to observe that in no instance do the plaintiffs contend that money is repayable other than because it was lent. They claim no equitable interest in Quakers Hill. It thus follows that the plaintiffs must, with respect to each amount, prove that the Deceased and Adam entered into a contract for loan: Heydon v Perpetual Executors Trustees & Agency Co (WA) Ltd (1930) 45 CLR 111 at 113; [1930] HCA 26; Joaquin v Hall [1976] VR 788 at 789; Coshott v Sakic (1998) 44 NSWLR 667 at 671. It also follows (contrary to what was put on behalf of Adam) that there is no room for the application of any presumption of advancement in his favour. This is squarely a contractual case. 4. Whether the Deceased and Adam entered into a contract in each instance, and what are the terms of any such contract, requires an objective assessment of the state of affairs between them, that is, what would be objectively conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. The Court does not engage in a search for the uncommunicated subjective motives or contentions of the parties: Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; [2002] HCA 8 at 105 [25]. 5. The objective theory of contract requires an external manifestation of assent to an offer. Whether there has been such an assent turns on whether a reasonable bystander would regard the conduct of the offeree as signalling to the offeror that his offer has been accepted: Empirnall Holdings Pty Limited v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 534–535; JP Morgan Australia Ltd v Consolidated Minerals Ltd [2010] NSWSC 100 at [140]; Boss Constructions (NSW) Pty Ltd v Rohrig (NSW) Pty Ltd [2019] NSWSC 374 at [79]. 6. I will deal with each loan in the order in which it appears above. Claim (1) – $9,500 1. Adam submitted that the plaintiffs have not proved this loan and that, even if there was one, the claim is statute-barred. I uphold both contentions. 2. First, counsel for the plaintiffs did not take the Court to any admissible evidence in support of this claim. 3. It was suggested to Adam in cross-examination that the Deceased paid him the money to help purchase a green Holden station wagon. Counsel referred to $9,900 as opposed to the $9,500 claimed (T78:11–13). Adam said he did not recollect receiving that amount to help purchase the Holden station wagon. 4. Second, even if the plaintiffs had proved an advance (which they did not), an objective assessment of what was outwardly said or done does not reveal an intention to enter into a contract of loan. 5. Third, this claim is out of time. Section 14(1)(a) of the Limitation Act 1969 (NSW) provides: (1) An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims— (a) a cause of action founded on contract (including quasi contract) not being a cause of action founded on a deed 1. If there is a loan, it is not in issue that repayment was on demand. 2. It is well established that a loan of money on request creates an immediate debt and the debt which constitutes the cause of action arises instantly on the loan: Ogilvie v Adams [1981] VR 1041 at 1049; Young v Queensland Trustees Limited (1956) 99 CLR 560 at 566; [1956] HCA 51; Fischer v Nemeske Pty Ltd [2015] NSWCA 6 at [99]-[100]. 3. The cause of action in respect of this claimed loan therefore arose in 2011 and was statute-barred long before 26 September 2022 when the proceedings began. 4. Counsel for the plaintiffs put that the cause of action on a loan on demand arises when demand is given. However, he cited no authority which supports that proposition, which is, in any event, contrary to the authorities referred to above. Claim (4) – $13,683 1. The sole evidence relied on by the plaintiffs is a green 'post-it' note which is reproduced as Figure 1. Figure 1 1. It may be observed that the document makes no reference to a loan. Adam denied having borrowed the amounts recorded in the document. The document does not establish a loan. 2. There is no suggestion that it was ever given to or shown to Adam. At the highest (assuming it purports to record a loan), it is evidence of an uncommunicated, subjective intention harboured by the Deceased and therefore can play no part in the objective assessment of whether there was a contract of loan. 3. The plaintiffs have not established a contract for loan but, had they done so, the claim would, in any event, be statute-barred, the monies having been advanced more than 6 years ago. Claim (7) – the Tools Loan – $2,300 1. The plaintiffs argue that this amount was lent by the Deceased to Adam to purchase tools. The sole evidence relied on is a yellow 'post-it' note which is reproduced as Figure 2. The plaintiffs rely on the use by the Deceased of the words "Loan for Tools". Figure 2 1. Once again, the document is, at most, evidence of an uncommunicated, subjective intention harboured by the Deceased and therefore can play no part in the objective assessment of whether there was a contract of loan. 2. In examination-in-chief, Adam gave evidence that, in 2018, he bought some tools with money that the Deceased had given him and that she never asked for the money back. 3. Under cross-examination, it was put to him that the Deceased "loaned you or gave you some money to buy some tools for your work" (T74:14–16). The following exchange took place at T74:21–24: Q. And, do I take it from what you have just said, that you don't agree that it was a loan as such? A. As I said, I don't know unless I look at the bank statement. 1. The note also contains the word "repaid" in a sentence, the meaning of which was not revealed. There is evidence that from time to time he made cash payments to the Deceased. In this context, it is to be observed that the plaintiffs refused (in my view, without any good reason) Adam (or his legal advisors) access to unredacted bank account statements of the Deceased and sought to tender heavily redacted versions. The tender was rejected. A party who, without justification, redacts a relevant document runs the risk that the redacted version may be rejected, not least of all because the admission into evidence of such a document may be seen to be unfairly prejudicial to the opposing party: see Evidence Act 1995 (NSW) s 136. Also, it is to be borne in mind that evidence is to be weighed according to the power of the party to produce it: Hampton Court Ltd v Crookes (1957) 97 CLR 367 at 371–372; [1957] HCA 28. 2. The plaintiffs have neither proved the existence of a loan nor that any part of the money paid over remains unrepaid. Claim (8) – the TAFE Loan – $2,930 1. It is not in dispute that, in 2019, the Deceased gave Adam money to pay for a TAFE course he was doing on air conditioning and refrigeration, and that he did not complete the course and the fees were refunded. 2. Although the plaintiffs adduced no evidence that the money was advanced, Adam's evidence was that he repaid "the whole lot". This is sufficient for the Court to be satisfied that the money was advanced. However, the plaintiffs adduced no evidence to satisfy the Court that this was a loan. 3. If the monies had been advanced for the specific purpose of paying for TAFE and were refunded, Adam may arguably have had an equitable obligation to repay them either as a trust analogous to that recognised in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 or otherwise. But the plaintiffs did not rely on any such obligation and Adam was not effectively challenged on his evidence that he repaid "the lot". 4. This claim fails. Claim (9) – $100,000 1. It is not in dispute that the Deceased advanced Adam the amount of $100,000 to buy Quakers Hill or that the money was used for that purpose. The sole question is whether the plaintiffs have established that this was a loan. 2. For the reasons which follow, they have failed to do so. The Background Facts 1. In October and November 2018, the Deceased provided $100,000 to Adam to buy a house. Adam paid a holding deposit on a property in the Sydney suburb of Schofields (Schofields), but the sale fell through and he repaid the money. 2. Documentary evidence in the form of an invoice (dated 22 November 2021) establishes that, on 4 December 2018, the Deceased attended a conference with a solicitor, Mr Victor Clonda, at which she gave him instructions to prepare a loan agreement between her and Adam. He prepared a draft agreement and amended it in accordance with her instructions. The draft agreement was, on its face, prepared only in connection with the property at Schofields, because it provides for that property to be given as security for payment of the loan. The Repayment Date is specified to be "thirty (30) years from the date of this document", however, the draft contains a clause entitled Repayment which provides for repayment on the Repayment Date, immediately on the occurrence of a Default Event, or any other date, which the Lender has notified in writing to the Borrower with 30 days' notice. The invoice was rendered nearly thee years after the conference. Michelle gave evidence that she asked Mr Clonda to send the invoice to the estate (I infer, for the purposes of this case). 3. According to Michelle, on the occasion referred to earlier in this judgment, when the Deceased referred her to the "bits and pieces", she asked the Deceased where "the loan agreement" was and the Deceased said she had not got it signed and that she had tried to get Adam and Natasha together but it did not seem to occur since they purchased the property and she had only seen them a handful of times. The evidence did not extend to explaining how she knew of the existence of any loan agreement. 4. Michelle also gave evidence that the Deceased lent money to her under a signed loan agreement although that instrument is not in evidence. She accepts an obligation to repay (I infer out of her inheritance). There was also unchallenged evidence that the Deceased lent money to Brent, which he has repaid. I infer that the money was lent in the context of the purchase by them of homes. 5. There is an aspect about Michelle's evidence which warrants specific mention and which does not reflect well on her reliability as a witness. And it also reflects somewhat negatively on the Deceased. 6. Michelle had been engaged in litigation with her biological father in this Court and had lost. An order for costs was made against her. The Deceased lent her $200,000 to buy a house in Cromer on the Northern Beaches of Sydney. A formal loan agreement was signed. The instrument, however, showed Michelle's husband (Chance) as the Borrower and the amount of the loan as $263,000. The Deceased lodged a caveat on the property to protect her interest. The extra $63,000 represented the amount of Michelle's savings, which she wished to protect against her father's claim. She gave $63,000 to her mother who then lent the inflated figure to her, and forgave the $63,000 by a codicil to her Will. Thus, to the outside observer, the document falsely held out that there was a loan of $263,000 secured by a caveat over their home. Michelle gave evidence that she did this on her mother's advice. On the application of the plaintiff's counsel, the Court issued a certificate pursuant to s 128 of the Evidence Act 1995 (NSW) in relation to this evidence. 7. Amongst the documents said to have been in the Deceased's office was an undated yellowish green note (which I am satisfied is in the Deceased's handwriting) which is produced as Figure 3. Figure 3 1. Maris gave evidence about conversations with the Deceased, having attended the conference with Mr Clonda and about the Deceased's reason for wanting a loan agreement, being a concern that Adam and Natasha would divorce and the Deceased not wanting the benefit of the money to go to Natasha. 2. $10,000 of the $100,000 emanated from Maris' bank account (and was refunded by the Deceased). Maris gave evidence of Adam taking umbrage with the Deceased at the fact that the note on the bank transfer described it as a loan which would appear on his bank statement, and the bank would look unfavourably on his application for a bank loan as he already owed money to other persons. Under cross-examination, it became apparent that Maris was in a significant state of confusion about the events surrounding the Schofield advance and the Quakers Hill advance. 3. Adam gave evidence-in-chief that (after Schofields had fallen through) he eventually identified another house to buy in the Sydney suburb of Quakers Hill. He gave the following evidence (T68:6–69:15): Q. And that's the house you currently live in any Quakers Hill? A. Yeah, I purchased a place in Quakers Hill. Q. Did your mother have did you have any financial dealings with your mother in relation to that house? A. Yes. Because my mother wanted me to live closer to my mother in law she gave me a deposit for this place of an equal amount. Q. Did she talk to you about giving it to you beforehand? A. Yes. Q. Do you know what she said? A. "I'm helping you like I've helped Brent and Michelle in the past with their studies and their own homes, and this is me helping you with your first home". Q. And you bought the house and you now live in the house, yeah? A. Yes. Q. Did she ever talk to you about having a contract in relation to the money that she provided? A. No. Q. Did she ever ask you for that money back? A. No. Q. And after you had moved in, did you have any further discussions with your mother about that money? A. Yes. Q. Do you want to tell the Court what those discussions were? A. I was just, Michelle owed me the money, I was trying to give it back to her. I asked, "When I give the money back to you early", and she said, "Wait a year and wait until you get laid off, once the house increases or whatever happens and then we will talk about it", and, then, a year later the house did go up in value, I asked the banks for a top up because we were going do some renovations and I didn't think he was going to be able to borrow a small amount, and, once they told me how much I could borrow I recontacted my mother and said hay I can give you have the money back. Q. What did she say? A. She said, "I don't want it". She said, "Let me sleep on it", and that's what my Mum did, she slept on dealings she made with always of us and gave us the answer the next day. Q. What the was the answer the next day? A. The answer the next day, Mum said, "Look, my father helped me in giving inheritance, I've acquired a lot of money and this is my gift to you and your family to get a foot in the door and move on with life, as I have helped your brother and sister". Q. Was that the last you heard of it or was there more? A. I don't usually take no for an answer so I pressured Mum for the last month, but not just like once a month, it was just like a few times, I said, "Mum, I have got the money, I can pay it back. I have only got a three month hold from the bank, and if I reject the money I have to reapply for the loan again. Q. And what did your Mum respond? How did your Mum respond? A. "I don't want the money". "I have already told you in person and in detail it is a gift as I have helped your brother and sister in the past, this is me helping you and I'm allowed to, I'm your mother". 1. Quakers Hill was bought, it seems, in mid-2019. 2. He gave evidence of being surprised that the Deceased had a draft loan agreement prepared by a solicitor. The cross-examiner did not make it clear to him that the draft loan agreement made reference to Schofields. There is no suggestion that he ever saw it, or that it was ever discussed with him or Natasha. 3. In an email dated 12 January 2022 to the plaintiff's solicitor, Adam said "I do not deny having received $100,000 from my mother, however, not as a loan to be repaid". 4. Natasha gave evidence of the following conversations with the Deceased around the time they moved to Quakers Hill (T56:17–29): [A.] … At that time she said, "I'm doing this for my son. What difference does it make that he's been living in your grandmother's house rent free for three years. He's saved a lot of money in those three years. If she can gift something like that to you why can't I do this for my son?" And I said, "Well, I don't feel comfortable with it. You'll be getting your money back as soon as I get back to work". And she said, "I don't want to hear of that. I'm doing this for Adam. I've done a lot for his brother and sister. I'm doing this for my son". Q. Did you have cause to discuss the money with Mrs Dunphy again after that? A. We never spoke of it again. 1. Natasha also gave evidence of being surprised that the Deceased had arranged for a loan agreement to be prepared. It was also not made clear to her that the instrument was concerned with Schofields. The Plaintiffs' Case 1. As best as I could make out, the plaintiffs rely as establishing the existence of the loan, on the following: 1. Figure 3; 2. Michelle's evidence that the Deceased had told her she had lent Adam money; 3. Maris' evidence about his conversations with the Deceased; 4. the fact that the Deceased instructed that a formal loan agreement between her and Adam be prepared; and 5. the fact that the Deceased lent money to Michelle and Brent (apparently under formal instruments), which in the case of Brent has been repaid, and in the case of Michelle she acknowledges her indebtedness. Adam's Case 1. Adam relies principally on conversations said to have occurred between the Deceased and Natasha and the Deceased and himself and on the failure on the part of the plaintiffs, in any event, to prove a loan. Consideration 1. Leaving aside the fact of the transfer of the money to Adam, the plaintiffs adduced no evidence of any outward behaviour between the Deceased and Adam which, objectively viewed, would establish any contract, let alone one of loan. If there had been a loan, it is inherently improbable that it would have been contemplated by either of them to have been repayable on demand, given that it was to acquire a house. 2. As with Figures 1 and 2, Figure 3 is, at most, evidence of an uncommunicated, subjective intention harboured by the Deceased and therefore can play no part in the objective assessment of whether there was a contract of loan. It is undated. 3. The plaintiffs did not suggest that Adam or Natasha knew of the existence of Figure 3 or the loan agreement. The loan agreement was, in any event, not prepared with respect to Quakers Hill. Neither Adam nor Natasha were party to any of the communications on which the plaintiffs rely. The fact that the Deceased may have lent money to her other children is not evidence of a contract with Adam, particularly in circumstances where the other children signed loan documents and Adam did not. The conversation, reported by Maris, in which Adam is said to have complained about a notation on the bank transfer, is supportive of Adam, rather than the plaintiffs. 4. The substance of Adam's evidence, as well as that of Natasha, is consistent with the conclusion, which I consider to be more probable than not, that whilst there might have been an expectation on the part of the Deceased (or Adam) that the money would be repaid, the Deceased ultimately took the position that it was a gift. This would not be inconsistent with the existence and terms of Figure 3 as well as the subsequent failure by the Deceased to request the execution of a loan agreement for Quakers Hill. The draft loan agreement made provision for Schofields to be given as mortgage security. Quakers Hill is owned jointly by Natasha and Adam. Natasha correctly pointed out that the loan agreement has nothing to do with her. The reservations reportedly expressed by the Deceased about Adam's marriage to Natasha occurred before the Schofields purchase, Quakers Hill was acquired in mid-2019 and Isla was born in August 2020. 5. An attack was made on Adam's credit. There were aspects of his evidence, in particular his denial that a 'post-it' note was in the Deceased's hand, which were less than convincing, but with respect to the conversations with the Deceased set out in the transcript reproduced above, I accept his evidence as truthful. In any event, he was not challenged on these conversations. 6. I also believe Natasha. It was not submitted by the plaintiffs that I should do otherwise. Conclusion 1. All of the plaintiffs' claims fail. The Summons is dismissed. 2. I will hear the parties on costs, should this be necessary. ********** Amendments 28 March 2023 - Change in size of text in paragraph [9]. 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: 28 March 2023