New South Wales Supreme Court CITATION : Norris v Kandiah [2008] NSWSC 283 This decision has been amended. Please see the end of the judgment for a list of the amendments. JUDGMENT DATE : 26 March 2008 JUDGMENT OF : Rein AJ DECISION : At [54] and following. CATCHWORDS : Loan agreement using contract for sale as form of security - whether abandoned by mutual agreement - Earlier loan whether interest agreed to be paid and whether fully repaid. CATEGORY : Principal judgment CASES CITED : Austin v United Dominions Corporation Ltd [1984] 2 NSWLR 612 Richard Francis, Maxims of Equity, 1728 TEXTS CITED : Meagher, Gummow and Lehane's Equity - Doctrines & Remedies (4th edn, Lexis Nexis, 2002) Carter's Breach of Contract (2nd edn, Law Book Company Ltd, 1991) Cheshire & Fifoot's Law of Contract (7th edn, Seddon & Ellingham, Butterworths, 1997) PARTIES : Geoffrey Norris (Plaintiff) Nagasothey Kandiah (Defendant) FILE NUMBER(S) : SC 3972/2007 COUNSEL : Mr. R.J. Horsley (Plaintiff) Mr G.A. Rich (Defendant) JUDGMENT 1 HIS HONOUR: As at February 2007, the plaintiff (Mr Geoffrey Norris) owned inter alia three properties: two units in the Brisbane suburb of Toowong, number 12 and number 59 Centro ("the Centro units") and a property called Mornington at Kangaroo Point ("Mornington"). 2 The defendant entered into written agreements to purchase the Centro units (see pp. 46-53 Exhibit A). Those transactions were ultimately completed but the date of settlement was postponed on a number of occasions (8 April, 30 April, 8 May and 11 May 2007), because the amount which the defendant had agreed to pay was less than the amount then due to ensure clear title was given to her for the Centro units. Settlement of the Centro units did occur on 22 May 2007 and title was transferred to the defendant. 3 On or about the 11th May 2007, the parties entered into a written contract which on its face provides for sale of Mornington, whereby the defendant agreed to pay $320,000 for that property, and pay a deposit of $45,000. 4 At some time, either at the time the Mornington contract was signed i.e. 11 May 2007 (on the plaintiff's case), or on 16 April 2007 (on the defendant's case), another document was signed, and I shall refer to it as "the loan agreement". It has no heading and it is not dated, but it is signed by the plaintiff and the defendant. It is in the following terms (at p.3 of Exhibit A): "I, Geoffrey Norris of 4 McKay Place Michinbury NSW have hereby taken a loan of $50,000 from Nagasothey Kandiah of 32 Buring Crescent Michinbury NSW. This amount will be sent to Zappulla Trikam & Partners Solicitors. Of this amount, $45,000 is deposit for Nagasothey Kandiah purchase of my property at Lot 14/64 Lambert Street, Kangaroo Point, Queensland and $5000 will be for other expenses incurred by myself. I agree to repay Nagasothey Kandiah the loan amount back in seven instalments with interest at the rate of 10.5%. My first payment will start on May 31st 2007 and final payment will be made on 30th November 2007. If I default any of the payments, Nagasothey Kandiah will have the right to go ahead with the contract to buy my property at Lot 14/64 5 The defendant accepts that on the date the loan agreement was signed it was intended that she would loan the plaintiff $50,000 and that the contract for sale would only be security for the loan. She says however that on 20 April 2007 she and the plaintiff agreed that since the plaintiff could not repay such a loan and could not complete the Centro unit sales without a further injection of cash the contract for sale had to proceed as a conveyancing contract. The accounts of the plaintiff and defendant concerning the loan agreement diverge considerably. 6 The plaintiff sold Mornington to a third party for $495,000 pursuant to a contract for sale entered into on 18 June 2007. The net proceeds of sale are by agreement held in a joint account in the name of Zapulla Trikam and Partners ("ZTP") the solicitors who acted for both plaintiff and defendant on the sale of the Centro units and preparation of the Mornington contract of sale. The plaintiff claims entitlement to those funds and the defendant seeks from the plaintiff the benefit of the contract of sale which she asserts was breached by the plaintiff's sale to the third party. 7 In addition, there is also a claim made by the defendant by way of cross claim. The plaintiff and his wife have been friends of the defendant for approximately seventeen years. In 2005, the defendant lent the plaintiff $5,000, which was, according to the defendant, to be repaid within one month. The defendant asserts that the plaintiff agreed to pay interest at 10.5% per month for the first month. The defendant says that the loan was made in late 2005. The plaintiff says that he received the $5,000 in June 2005 and made four payments of $1000 to the defendant in the period July to November 2005. The defendant agrees that on 22 November 2005 the plaintiff paid her $1,000 but denies that the plaintiff has ever repaid the balance either in instalments or at all. The plaintiff denies that interest was ever sought or agreed to. I shall refer to this loan as "the 2005 loan". 8 At the close of the evidence, Mr Horsley, Counsel for the plaintiff and Mr Rich, Counsel for the defendant, agreed that the following issues arise: (1) Was the loan agreement made on 16 April 2007, by mutual agreement, abandoned on 20 April 2007 and agreement reached for sale of Mornington by means of a Contract of Sale; (2) If the answer to (1) is no, then (a) Was the failure of the plaintiff to pay the first instalment due under the loan agreement until 4 June 2007 a breach of the loan agreement and (b) If so, what is the consequence of that breach, having regard to: (i) the fact that the defendant never asserted any right to proceed on the contract of sale by reason of default under the loan agreement (ii) the fact that the default in payment was only for a 5-day period and was cured by 4 June 2007 (3) Did the plaintiff repay more than $1,000 of the 2005 loan (4) How much if anything is now owing in respect of the 2005 loan It was agreed that if the answer to (1) is yes, then the defendant is entitled to recover the amount of $175, 000 plus interest to 29 February 2008 of $4315.11 and accruing at a daily rate of $47.95 9 The defendant was vague as to when she had lent the money under the 2005 loan, saying it was not before July 2005 and some time between July and September 2005. The plaintiff did not dispute that the defendant had, at his request, lent him $5,000, to be repaid within 5 months. He says he offered to pay interest but there was none sought by the defendant and no agreement on a rate. The plaintiff's evidence in cross-examination was that he had received the loan in June 2005 for the purpose of purchasing furniture and had used it to this end. A document produced, part of Exhibit C, confirms that delivery of furniture was taken in June 2005 although the order had been placed long before and a small deposit made in the previous year. 10 The plaintiff swore on oath that he had paid the defendant in cash on four occasions between July and November. The defendant swore on oath that the plaintiff had paid her only once. There is no dispute that the plaintiff paid $1,000 on 22 November 2005. There is no dispute that on that date the defendant said to the plaintiff that she wanted to record the loan and the payment and to have the plaintiff sign the document. The defendant did not provide the plaintiff with a copy of the document which is found at p.40 of Exhibit A. It is in the following terms: "I, Jeffrey (sic.) Norris borrowed $5,000.00 from (Joe) N. Kandiah. Paid 22/11/05-$1,000. (SIGNED) Joe Jeff Norris Balance: - $4000/" 11 It is agreed that the words "balance $4000" were not present on the document when he signed it, but the plaintiff denies that the defendant added these words in his presence after he had signed the document. Absent the disputed words the document says nothing about other payments having earlier been made. The undisputed words point to no payment other than $1,000 having been made. The document makes no reference to interest but implicitly, if the balance is $4,000 because only $1,000 has been paid, then the disputed words which the defendant says she wrote are inconsistent with any claim for interest. 12 The amount involved is small but Mr Rich saw the issue as having wider implications on the credibility of the parties. The question of the loan and the lack of repayment (even on the plaintiff's case there remained $1,000 owing) had some relevance in the main part of the case because the plaintiff had not repaid the relatively small amount on either case, and because of the interest rate. 13 There was no dispute that the defendant bore the onus of proof that $3,525 of the loan monies had not been repaid. The figure of $3,525 is derived from the agreement that $1,000 was repaid in November 2005, and a further $1,000 was paid after these proceedings were commenced. The $525 is equivalent to interest at 10.5% for one month that the defendant claims that she and the plaintiff agreed would be paid. The Mornington contract/Loan agreement 14 The loan agreement records a loan of $50,000, but states that $45,000 "is deposit for Nagasothey Kandiah purchase of [Mornington]" and $5000 "will be for other expenses incurred by myself", the myself being a reference to the plaintiff. 15 On 18 April 2007 ZTP wrote to the defendant enclosing a copy of the Mornington Contract for Sale. There is no dispute that that was sent after the plaintiff and the defendant had jointly, at their meeting on 16 April 2007, contacted ZTP and asked them to prepare a contract for sale. The plaintiff says that the defendant spoke to ZTP and told Therese at the ZTP office that they needed a contract for sale "so that we can take it to the lender and get the money for the deposit" (para 24 of Affidavit of 17 August 2007). The plaintiff said that the defendant told him she could only get the loan from the bank if she specified a purchase price of $320,000 rather than $500,000. The defendant says that she told the plaintiff she had $350,000 available for investment purposes and he proposed that she use $50,000 of it to enable him to pay out the balance of the Centro debts. The defendant says at paragraph 9 of her affidavit of 13 September 2007 that she told Therese "I am buying another property from Geoffrey Norris". If that is what she said, it was at that time, on her case, untrue. She was not cross examined on that point. 16 The Mornington contract did provide that the purchase price was $320, 000 and that there would be a deposit of $45,000 (see p.59 Exhibit A) and it had the following Special Condition: "the vendor agrees to release the deposit monies to the buyer on execution of the contract" (p.60 Exhibit A). 17 There is a document (p.61 Exhibit A) executed by the parties headed Deed of Variation dated 17 May 2007. It is in the following terms: "The seller and buyer agreed to vary the Contract of Sale dated the 11th of May 2007 as follow [sic.]: The Deposit Holder is Zapulla Trikam & Partners; and Special Condition 1 of the Contract is deleted and insert in lieu thereof the following: 'The buyer authorises the stakeholder to release the deposit monies in the sum of $45,000.00 to the Seller on settlement date for the sale of the properties situated at Units 12 and 59, Landsborough Terrace, Toowong Qld 4066. The Seller agrees to refund the Buyer the deposit moneys (sic.) paid in the event that the Contract of Sale is terminated by the Buyer or settlement is not effected on the 1st of December, 2007 or a date mutually extended provided that the Buyer is not in breach of the Contract". The first part of Clause 2 of the Deed of Variation seems to be unnecessary given the Special Condition. 18 On 22 May 2007 ZTP wrote to the plaintiff in relation to Mornington: confirming that "both parties have agreed to vary the contract of sale by deleting the deposit amount of $45,000 and insert in lieu thereof $47,716.95". It is clear that the amount of $47,716.95 was the amount which the plaintiff needed to be able to give the defendant clear title on the Centro units sale. 19 It is clear on the evidence that the plaintiff was facing a significant financial crisis between January and May 2007: (1) he had fully drawn his credit card (2) He had not made all repayments due on his mortgage to Perpetual Trustees for Mornington from September 2006 (see Exhibit B). (3) He could not afford to repay all of the loan money on the 2005 loan contract, on his case $1,000 remained owing. (4) He was, in January 2007, in arrears with his home loan (see p.41 Exhibit A) (5) He had had to double the hours he worked, but without this enabling him to meet his obligations. (6) He could not discharge his liabilities on the Centro units and hence complete the sale to the defendant without a loan from the defendant Credit of the Witnesses 20 A trenchant attack on the plaintiff's credibility was launched by Mr Rich. Reference was made to the plaintiff's evasive and non-responsive answers and certain areas of implausibility were highlighted in Mr Rich's detailed submissions. Mr Horsley conceded that the plaintiff was not a good witness, but he submitted that the answers which the plaintiff gave ought not be viewed as deliberate untruths and that much of what he said did not really assist his case. Mr Rich submitted that the plaintiff's motive for being evasive or untruthful is not important. He submitted that the Court ought not accept the plaintiff's evidence unless independently corroborated. 21 Mr Horsley attacked the credibility of the defendant. He highlighted matters which he submitted demonstrated that she was not a reliable witness and he pointed to matters that objectively made the plaintiff's case a more probable one than that of the defendant. 22 The plaintiff frequently failed to answer the question asked of him and I accept the submission that overall he was a very poor witness. English is his mother tongue, but he gave rambling and incoherent answers to many questions. He seemed to find it difficult to focus his attention on what was being asked of him and gave the impression that he was, in dealing with the cross examination, trying to determine where it was leading. There were a number of areas where his evidence was problematic and I shall set out some of them: (1) His assertion that he had paid three instalments of $1,000 before paying $1,000 in November 2005 and asked for a receipt on that occasion, and not having been given one on any previous occasion, but signed the document at p.40 of Exhibit A without insisting that it be rectified to record those earlier payments. He made no reference to such requests in his affidavit and he said at T21.51 and T23.15 that he had not asked the defendant to change the wording of the receipt in November 2005 to acknowledge earlier payments because he trusted her but at T28.25 he said he had asked her and she said should would put it in later. (2) His evidence about the timing of the payments was given in an unconvincing manner. (3) He asserted that he had felt unable to sell Mornington after 11 May and took it off the market not even accepting an offer because he had given security to the defendant: T85, when a month before , on his evidence, he had been willing to sell the property for $500,000 but it had fallen through because the buyer had not been willing to enter into a contract. The evidence was unconvincing and he did not explain how, if the property was off the market, he had signed a contract for sale to the third party by 18 June. (4) He asserted that the $5,000 referred to in the loan agreement was a "sort of a fee" to the defendant: T75.10-15.25 and at T75-78 gave explanations for the lack of receipt of the balance of the $50,000 loan that were not credible (5) His unwillingness to admit that he was in a state of acute financial crisis and had to borrow money from the defendant: T43.21-34, was surprising. (6) He said he did not run a business at T13.40, but admitted that he did at T13.54 (7) the conversation which he asserts he had with the defendant where he asked her had she "sold the caveat" and to which he claims she responded that she had, was bizarre 23 So far as the defendant's credibility is concerned there were a number of unsatisfactory elements of her evidence, including inconsistencies between her oral evidence and her affidavit. Some examples of these matters are: (1) The defendant asserted in her affidavit that she had signed the Centro unit contracts in March 2007 when in fact she had first signed them in January 2007 (2) She appeared in her oral evidence to minimise her contact with the plaintiff concerning the unpaid 2005 loan and she stressed that she trusted him both in relation to the 2005 loan and the loan agreement, and had never been let down by him: T251.58-T252.5, T286-T287, T289, T291, and she even said at T325.29-30 "I still trust him a heap". This was inconsistent with her evidence contained in her affidavit at paragraph 22 where she had said to the plaintiff the following words at a time when on her case she had just learnt that he did not have the ability to repay the $50,000 he was proposing to borrow: "I am really disappointed and upset with the fact that you can say that you knew when you signed the loan agreement that there was no means by which you could repay it. This has hurt me immensely and I can only think that you were trying to cheat me when I trusted you and regarded you as a friend". At T289-316.57, the cross examination in my view demonstrates the defendant's continuous lack of responsiveness in answering questions, her willingness to proffer answers lacking in credibility and her resort to claimed language difficulties when it has been established that she has given answers inconsistent with earlier evidence or her affidavit. The undermining of what is found in paragraph 22 is important because on the defendant's case this is the occasion when she realised that the loan agreement made but four days earlier could not proceed. (3) She said in her affidavit that she had obtained an informal assessment of the value of the Centro units before she had executed the Centro contracts but it is clear that she had not because she signed the Centro contracts on 28 January 2007 and received an informal valuation on or after 19 February 2007 (see p.43, Exhibit A). I do not think it at all likely that the agents who believed that the defendant owned the unit and wanted to sell it would have taken three weeks to provide the information sought. Her evidence that she did not tell the agents she was selling the unit and that she was ringing them on behalf of her friend see T237-241 and did not tell them that she wished to sell the unit was unconvincing and implausible given the contents of the letter. (4) She said at T271 that she did not know the reason why the Centro sales had failed to complete and see T272 and the cross examination generally at T271-280 is another example of her unreliability as a witness. (5) The defendant described herself in her affidavit as a businesswoman. The business which she ran in partnership or through a company was that of packaging items for other companies: see T137.24-34. She also had some significant experience in real estate and she appeared to be sufficiently experienced commercially for the plaintiff to be willing to discuss his financial problems with her: see paragraph 21 of her first affidavit. As the cross examination continued the defendant, on her evidence, seemed to shrink from an experienced businesswoman who could draft a legal document (as she admitted she did at T193) and who could make and offer a financial assessment, to a person who merely wrote what the plaintiff dictated: see T337 in relation to her notes; or did what the plaintiff told her: T209-10. I did not find her evidence at all convincing and I think it was a deliberate attempt to downplay her abilities. She appeared to me to be far more astute and sophisticated than the plaintiff. (6) Attempts to investigate answers she had given were met with uninformative answers which ended with "I can't remember" and "I am confused": see T339-T343. (7) I find it difficult to accept the defendant's evidence that she did not appreciate that at $320, 000 she would be purchasing Mornington at a significant undervalue. She sought to maintain the position that it was not, until the second last day of the hearing. I excluded entirely from consideration that portion of the cross examination dealing with the affidavits verifying her defence and amended defence as I think that is likely to present some difficulties to all but a very sophisticated witness, perfect in English. 24 These matters going to the defendant's credibility were sought to be explained by the contention that the defendant's English was not of a high level and that it was her second language. The defendant said that her first language was Tamil and although she had spoken English in Malaysia and had been educated in English to Year 10 in Malaysia she had problems in English. In re-examination she said that she had mentally translated questions into Tamil before answering: see T372.20-33. 25 I do not accept the defendant's assertion that linguistic confusion has in general been the cause of what might otherwise appear to be unreliable evidence, for the following reasons: (1) Although on occasions some minor grammatical errors were contained in her expression, overall and when she was not being taxed by inconsistencies she seemed to demonstrate a high level of English, both in being able to understand questions, and to answer them (2) When she said she had difficulty, it seemed in the main to be connected to her realisation that she had said or might have said something contradictory in her affidavit or earlier in her evidence (3) Many of her non-responsive answers appeared to be either a deliberate attempt to avoid dealing with a topic and to move focus away from the topic, rather than any genuine linguistic problems: see T153.33-45, T217.17-53, T245.12-36, T312.21-41. (4) I have referred to paragraph 22 of her first affidavit in which she sought to demonstrate how she had come to abandon the loan agreement and to set out words which showed a loss of confidence in the plaintiff. In her oral evidence, whilst being cross-examined about the amount she said was still owing on the 2005 loan she seemed keen to minimise her concern about that outstanding amount and its repayment: see T285-T289. It was then put to her that she had said in her affidavit that she had called the plaintiff many times about the outstanding amount but that she had said that she had only telephoned him a few times. Her explanation for the discrepancy was her command of English, and it was to me, very unconvincing: see T289-T291. (5) The loan agreement exhibits a high level of English: see p.3 Exhibit A. At T193.42 she says that she composed it in order to have herself and the plaintiff agree. (6) There are examples of the defendant asserting that she does not understand a particular word where only shortly before she had been able to answer a question with that word, or has used that word: seeT355.4-6; T355.17-T356.29 ("undervalue"); T146.52, T277.25, T279.15, T307.27 ("detailed"); T320.15 ("alleged"). (7) At T303.50 she sought to explain problems with what she had said as somehow connected with problems with the past tense, when the change of tense (from "are" to "were") had no significance. (8) Her evidence of exposure to English in Malaysia supports objectively the view that she is competent in English. Her partner of many years does not speak Tamil. She did not need her affidavit translated and she used solicitors who do not speak Tamil. (9) Pages T329-T343 are another demonstration of the defendant's style. At T329 she said she remembered discussing the possibility of her taking a half share in the ventures of the plaintiff; at T327 and T334, she said that she could not remember and at T337 and T338 she said she had definitely not discussed it: see also T339.10. I do not accept that these matters are a product of linguistic problems. 26 At the end of the oral evidence I was left with the impression that neither plaintiff nor defendant was a reliable and honest witness. Examination of the transcript has only confirmed that impression, and has made it necessary to pay close attention to the documents that have been tendered and to the factual matters that are not in dispute, in an endeavour to discern which version of events is more probable on the balance of probabilities. The plaintiff's wife gave evidence which to some degree supported the plaintiff's evidence. Mr Prasad, the defendant's partner, in his evidence confirmed the defendant's evidence that the Mornington contract had been signed by herself and the plaintiff at her house and witnessed by Mr Prasad and her nephew – the plaintiff's evidence having been that the contract had been executed at his home. Mr Rich submitted that the plaintiff's wife gave unreliable evidence and Mr Horsley said nothing about Mr Prasad. Neither are witnesses independent of the parties and I approach their evidence with caution, particularly that of the plaintiff's wife. I do not think that Mr Prasad's evidence was impugned and I am inclined to accept that the Mornington contract was signed in the defendant's home but that is not inconsistent with the loan agreement having been signed at the same time or just before or after because it did not require witnesses. 27 I think it is inherently improbable that a person who had paid three instalments of $1,000 prior to November 2005 and who had asked for receipts, would sign a document recording a loan of $5,000 and a payment of $1,000 on that date without reference to earlier payments or at least a balance owing of $1,000. 28 I think it is inherently improbable that a person who had lent $5,000 with interest payable at 10.5% per month or for the first month would write that a balance of $4,000 was owing if she knew that $525 was owing for interest. 29 I think it is surprising that the defendant did not seek to record the continued debt of $4,000 or $4,525 as at April 2007. This induces doubt as to whether it remained unpaid. On the other hand there is no dispute that $1,000 of it remained unpaid at that date. 30 There is no dispute that the loan agreement was entered into, that the Contract of Sale was originally intended as security, and that the deposit nominated in the Contract of Sale (originally $45,000) would be released to the plaintiff as part of the loan of $50,000. 31 There is no dispute that the plaintiff needed the release of the $45,000 (and then the $47,716.95) in order to complete the Centro sale to the defendant because without those monies, the amount yielded by the two sale contracts was insufficient to discharge the mortgages on the two properties. 32 It is the defendant who asserts that the loan agreement which it is agreed had been entered into by the parties, was abandoned by mutual agreement. There are some objective matters which point to the loan agreement not having been abandoned: (1) The settlement period on the Contract for Sale was fixed as a lengthy period to allow repayment of the loan. No cogent explanation was proffered by the defendant as to why, when on her case the Contract for Sale ceased to be security, the settlement period was not brought forward see T197 and T299-300. This has added significance because on the defendant's evidence, the plaintiff told her the property might be repossessed. (2) The defendant was aware on the Centro transactions that the amount that she had agreed to pay was insufficient to pay out the mortgagee yet, that seemed to cause her no concern in relation to Mornington. Her explanation was that she assumed that there would be no similar problem with Mornington, but could not explain why she had made that assumption having regard to her own evidence of what she said the plaintiff had told her. (3) The defendant made no effort to record the mutual abandonment of the loan agreement. This is in contrast to her having recorded in November 2005 that $4,000 remained unpaid of a $5,000 loan (4) The plaintiff's solicitors wrote to the defendant's solicitors asserting that the loan agreement was on foot. There was never any denial of that assertion in the correspondence from the defendant's solicitors (by mid June Mr Harish Prasad was acting for the defendant) even when the plaintiff's solicitor pointed out that the plaintiff's central allegation had not been denied. (5) The Mornington property was sold for $495,000 on 18 June 2007, i.e. at $175,000 more than the price for which the defendant says the plaintiff agreed to sell it to her. This is a huge differential and on the defendant's case there was no attempt by the defendant to obtain a price higher than that which he had been prepared to fix for the contract as a form of security (as the defendant agrees it was as at the date she says the loan agreement was signed – i.e. on her case, 16 April 2007). Although initially disputed by the defendant, it was agreed by 4 March 2008 that the sale on 18 June was evidence of the market value of the property as at 11 May. (6) The defendant made no enquiries about the value of the Mornington property, saying that she trusted the plaintiff; the defendant, on her case, made enquiries about the Centro properties before she agreed to buy them at what the plaintiff had told her was an undervalue. I do not accept the defendant's evidence that she did make enquiries about the Centro units before she entered into the contracts to buy them, so the point is of reduced significance. 33 There are some factors which point or might point in the opposite direction and they are: (1) The absence of any correspondence to or from ZTP on the subject of the loan agreement (2) The assertion by the plaintiff that he took Mornington off the market (3) The poor financial position in which the plaintiff found himself (4) The absence of any request for the difference between the $47,716.95 and $50,000 34 So far as [33(1)] is concerned, if the plaintiff's evidence of what the defendant said to Therese is accepted, then they did tell ZTP, but in any event I think that factor is much reduced because if that evidence is not accepted then even when the parties were planning to proceed with the Mornington Contract as security only they did not tell ZTP of that fact. The loan agreement contemplated the advance of $45,000 of the funds by way of purchase deposit so the release of the funds in that manner is not evidence in support of the defendant's case. 35 So far as [33(2)] is concerned the plaintiff's explanation for having done so was not credible and there was no corroborative evidence that he had done so – the fact that the property was the subject of an executed contract on 18 June 2007 also undermines the plaintiff's evidence. The plaintiff he agrees never told the defendant that Mornington was off the market. I am not persuaded that he did in fact take the property off the market. 36 So far as [33(3)] is concerned, the plaintiff's financial position is of considerable significance since if the plaintiff could not afford to repay the $50,000 (or $47,716.95) lent by the defendant to meet the balance of Centro obligations then sale of Mornington would be necessary. There are however some difficulties with the theory that the plaintiff had to sell Mornington at $320,000 to meet the defendant's debt of $47,716.95: (1) in fact the plaintiff owed $374,000 approximately on Mornington so the $320,000 to be paid under the contract would not have enabled the repayment of the defendant's loan (2) There is no clear evidence that having sold the Centro units and discharged the debts on those two units the plaintiff could not meet the loan repayments, although it would not be surprising if that were so. He was able to meet the first repayment at least, albeit a few days later than required. The use of funds obtained by the plaintiff's wife at the Casino was disputed, and I am unable to conclude that they were in fact used. (3) There is the plaintiff's evidence that he had been offered and accepted $500,000 for Mornington in April 2007 but which contract did not proceed. He in fact sold the unit for $495,000 by contract of 18 June 2007 37 Given the overall precarious financial position of the plaintiff, it is likely that he would have had considerable difficulty repaying the loan had it not been for the arrival of a purchaser for Mornington at $495,000. The plaintiff says that he took Mornington off the market and that he did so because of the loan agreement with the defendant. The unavailability of the property due to its having been sold to the defendant would explain it having been taken off the market, as would a belief by the plaintiff that he could meet his debts including obligations under the loan agreement without recourse to the sale of Mornington. Given the lack of any convincing evidence from the plaintiff and any corroboration that he did take it off the market, I am not persuaded that he did so but his assertion that he did is, I think, a matter which offers support to the defendant's case. He also asserted that the defendant had told him she had to have $320,000 as the purchase price for bank borrowing purposes, although it appears that the defendant did not apply to the bank to purchase Mornington at $320,000 whether she told the plaintiff that she did is unclear. On the other hand, the defendant asserts that the plaintiff was willing to switch from loan to sale without any increase in price or even any attempt to increase it when that price was a very significant undervalue. The plaintiff, on the defendant's case, did not, before endeavouring to pay money on the loan agreement, seek to have her release him from the Contract of Sale which, on her case, he had entered into. If he now had a buyer for $495,000 compared to $320,000, given their mutually proffered friendship it strikes me as highly surprising that he would not have first, in the light of developments, sought to be released from the contract. Even on the defendant's case he simply sought to extend the date for payment. 38 One thing which the defendant did say on a number of occasions is that she had little choice but to reach some agreement with the plaintiff to ensure that he received money that would enable the sale of the Centro units to be completed. That, I think, is very plausible and I accept it, but that is consistent with the plaintiff's case that he needed at least $45,000 to ensure that the Centro sales went through and it is a position which favours neither the loan theory not the contract of sale theory. 39 The plaintiff's explanation as to why he agreed to sell Mornington at $320,000 if he defaulted was that he trusted the defendant as a friend: T67.1-18 and did not think he would default: T67.20. The fact that the plaintiff was willing to agree to the sale at $320,000 if he defaulted is a matter supportive of the defendant. I think it unlikely that the plaintiff was asking $320,000 because he thought Mornington was worth that amount or close to it – his evidence is that he had a buyer for $500,000 who ceased to be interested in early May and he did sell the property for $495,000 in June. It is possible that the plaintiff's evidence of an interested buyer was a fabrication and he only realised the true value of Mornington after he had agreed to sell the property to the defendant but it is most unlikely that he would agree to sell a $500,000 property for $180,000 less than its market value because he had such a poor appreciation of its value. If desperation were the factor, which is another possibility, it would be unlikely that he would not at least attempt to do better than $320,000 on a final basis. 40 The defendant emphasised the fact of her friendship with the plaintiff as a motivation for her lending him money, yet her position is that in addition to repayment of the loan with interest she is entitled to retain a windfall of $175,000. Of course if that is in fact the effect of the agreement between the parties she is not to be deprived of the fruits of it on some basis of lack of moral decency towards a friend, but it makes her protestations of friendship and acting out a desire only to assist him appear rather hollow. 41 So far as the shortfall on the $50,000 is concerned – I think it is clear that the plaintiff wanted enough funds to meet the Centro shortfall, which was achieved by increasing the amount released from $45,000 to $47,716.95. I do not think the failure to call for the small balance in the circumstances is of much significance, and even less so since on her case he still owed her $4,000 although that was not proffered as the explanation by the plaintiff, who asserted he owed $1,000. 42 There is another matter to which I have had regard. The loan agreement itself does not refer to $320,000 or the date of settlement of 1 December 2007. Those details are found in the Contract of Sale. Leaving aside the fact that the defendant's pleaded case was that there was initially a written agreement which contained those terms, on her case the Contract for Sale was entered into on a different date and a date when the parties had agreed to abandon the loan agreement and yet the loan agreement did not make any reference to the sale price. That the loan agreement did not contain those terms would be of less significance if the Contract for Sale was entered into at the same time. The loan agreement does refer to having "taken a loan" and to "the contract to buy my property". All these matters suggest that the loan agreement and the Contract for Sale were entered into at the same time and since there is no dispute that the Contract for Sale was executed on 11 May that is more likely the date of the loan agreement. 43 There are yet other pieces of the puzzle to which I should refer. The plaintiff arranged to pay part of the first repayment on 31 May 2007 ($3,500) and paid the balance of that first instalment by 4 June. The money was received by the defendant in her bank account by 4 June. According to the plaintiff (para 12-15 of his first affidavit), he tried to get the defendant to agree to alter the date for repayment from the 31 May (stated in the loan agreement) to 21 June (one month after he had actually received the deposit monies). He said that the defendant did not agree to change the documentation, but that he told her he would be putting $3,500 into her bank account on 31 May and the balance of $4,080.35 on 4 June, making a total of $7,580.35. The plaintiff says that the defendant rang him many times asking where the money was and in one conversation she told him that she calculated the amount due as approximately $12,500 because the rate of interest was 10.5% per month (not 10.5% per annum). The plaintiff's wife's evidence, if accepted, offers some support for the plaintiff's claim of a discussion about interest rates at 10.5%. 44 The assertion by the plaintiff that the defendant told him that he needed to pay 10.5% per month is curious. There is no independent evidence that the defendant demanded interest at that rate and there is one objective matter that points to the conversation alleged to have occurred in early June as not having taken place. The letter from Queensland solicitors acting on behalf of the plaintiff, Mylonas and Associates ("Mylonas") dated 31 May 2007 refers to the fact that they had received instructions that day from the plaintiff, and states: "Our client has today been advised by the lender that he is not required to make any instalments under the loan agreement. On our advice, an instalment of $7580.36 will be deposited to your client [sic] account today". (p.69 Exhibit A) The wording is opaque but would seem to refer to the defendant's refusal to accept money from the plaintiff. The plaintiff's evidence is quite inconsistent with any such conversation on or before 31 May. The plaintiff was not cross-examined on this discrepancy. 45 On the other hand the defendant prepared the loan agreement and neither 'per annum' nor 'per month' has been included after the "10.5%" and 10.5% "per month" is the rate at which the defendant says she lent the $5,000 under the 2005 loan. The letter from the plaintiff's solicitor, Mr Krishnar at p.91 Exhibit A refers to the defendant "unreasonably insisting that the interest rate is 10.5% per month in the absence of any evidence and or effective notice to our client" and that allegation was not answered: see p.98 and following Exhibit A. The claim that the defendant asserted an entitlement to interest at 10.5% per month if untrue, is a rather sophisticated untruth because it involves the plaintiff asserting a construction of the loan agreement by the defendant that, if correct, would impose an extra liability on him and make the payment by him on the amount he did attempt to pay (and there is no dispute that he did attempt to pay) insufficient. 46 Pages 1 and 2 of Exhibit A are pages of notes written by the defendant. The defendant says that on 20 April at the plaintiff's house, she went through his financial position with him (he having his laptop with him) and she noted down his liabilities on page 1: see para 21 of the defendant's affidavit. The plaintiff does not dispute the document was written by the defendant and he says he did give details of his financial position to the defendant in December 2006 or early January 2007. Mr Rich makes the point that page 1 of Exhibit A must have been written on or after 16 April 2007, because it contains a reference to "my loan" at $7,580 per month as a debt to the defendant. The $7,580 is the repayment of the principal and interest at 10.5% per annum over 7 instalments. Since the plaintiff agreed that there was a conversation about a loan of $50,000 on April 16 and not before, the document could not have been created prior to April. The document could have been created on or after April 16. It does not on its face establish that the plaintiff could not afford to repay the loan of $50,000, it shows expenses but refers also to income and no analysis has been proffered of the document and it was not put to the plaintiff that it established inability to repay the loan. I am inclined to accept that it was prepared in April or May 2007, rather than December 2006 or January 2007, but I do not accept that it was prepared on the 20 April as opposed to 16 April, the latter date being more likely because the defendant was on both cases agreement to loan the plaintiff money. It does point to interest being treated as 10.5% per annum rather than per month. I am left in doubt as to whether the defendant ever did assert that the interest rate under the loan agreement was 10.5% per month. 47 In cross examination Mr Horsley taxed the defendant about the fact that her solicitors did not deny or even respond to the assertion that there was a loan agreement on foot, even when the plaintiff's solicitors noted the absence of denial. The defendant agreed that she had received Mylonas' letter and had provided it to her solicitor: T179. She agreed that her solicitor had forwarded a draft response for her approval: T218 inter alia. There were some potentially inconsistent answers concerning her understanding of the assertion and that it needed to be answered but ultimately her position was that she left it to her solicitors to act upon what she had told them: T218.25. She said that she did provide her solicitors with a copy of the loan agreement and told them that it had been abandoned. It is difficult to accept that the letter to Mr Norris of 13 June 2007 (p.72 of Exhibit A) by Mr Harish Prasad could have been written without instructions from the defendant concerning the loan agreement since the letter returned the plaintiff's cheque for $3,580.35 "being refund of monies sent by you". If the defendant did give her solicitors instructions that there had been a loan agreement entered into on 16 April but by agreement abandoned on 20 April it is difficult to imagine that the solicitor could have failed to regard it as important to assert the fact of abandonment if those were his instructions. 48 Mr Rich submitted that the defendant's solicitor did not have the letters from Mylonas when he responded to the plaintiff and referred to T151.35-56 and T154.15-T155.13. The evidence from T151-156 and T175-176 is contradictory and does not overall establish that the defendant did not provide the letter to her solicitors by 13 June. At T152 she said she had received the letter about four or five days after 31 May – and that she took the letter at that time and "spoke to my solicitors": T152.30. At T154 she said she gave the letter to her solicitor and told him about the loan agreement, but did not give him a copy of the loan agreement until that night: T156.1. In any event, she says she told her solicitors about the loan agreement before they drafted the letter which she saw before it was sent, and the subsequent letter of 7 August 2007, whilst denying misleading conduct in relation to the Contract of Sale, did not respond at all to the claim that a loan agreement had been entered into. 49 The lack of response by the defendant's solicitors is consistent with a view being taken by the defendant that she had a contract for sale of land which, being on its face untrammelled by any constraint she was free to pursue. I see it as of some significance in this case that even on her own evidence when the plaintiff confronted her and said he wanted to pay amounts due under the loan agreement she said "there is no loan. I have purchased the property", rather than words to the effect "you know that we agreed that the loan agreement was no longer in force". At T178-179 she said that she saw the loan agreement as "never existing" and see T157.20-24, T226.11-15 and T229.5. While her expression of the position to the plaintiff is only one matter to be taken into account the absence of any express reference to the agreement having been abandoned is reinforced by the fact that her solicitors did not in their correspondence assert that the loan agreement previously entered into had been mutually abandoned. 50 The lack of credibility of both parties has made it very difficult to determine where the truth lies. If the evidentiary burden rests on the defendant to establish that the agreement which had been entered into had been abandoned, and I am of the view that it does, then she has not discharged that onus, but, in any event, taking into account the various matters to which I have referred and particularly [32], [39]-[42] and [47] -[49] above I find on the balance of probabilities that: (1) the loan agreement was signed by the parties on 11 May 2007 at the same time as the contract for sale for Mornington. (2) the loan agreement was not abandoned as asserted by the defendant. 51 I therefore must deal with the question of whether the plaintiff was in breach of the loan agreement by his failure to pay all of the money due on 31 May 2007. I am not prepared to make a finding that the defendant agreed to an extension of time for payment because I cannot accept the evidence of either the plaintiff or the defendant and there is nothing objective to support the plaintiff's claim that she did. The plaintiff was therefore in breach of the loan agreement but he cured the breach by 4 June 2007. There is no evidence that the defendant sought to terminate the agreement before the breach was cured. Her case is that there was no longer any loan agreement on foot. 52 Mr Horsley, in oral submissions, made reference to the consequences of breach by the plaintiff of the loan agreement. There appeared to be no challenge to the principles he enunciated and which I shall set out below with reference to relevant texts. Where time is not expressed to be an essential term or condition (and it is not so expressed here) notice must be given to make it so: see Cheshire & Fifoot's Law of Contract (7th edn, Seddon & Ellingham, Butterworths, 1997). No notice was given. Even assuming time was essential, the termination of a contract does not automatically flow from a breach or repudiation of obligations under that contract. Rather, the promisee must actively exercise their right by electing to terminate performance (see Carter's Breach of Contract (2nd edn, Law Book Company Ltd, 1991) at [1001] – [1002]. The defendant made no such election, never purporting to terminate the loan agreement for breach but rather expressly or implicitly rejecting the existence of any loan agreement. 53 Mr Horsley also referred to the principle that equity would permit the plaintiff to redeem the mortgaged property on payment of all outstanding loan monies, including interest which has been paid by the plaintiff. I do not need to consider the point, but the maxim that "Equity suffers not advantage to be taken of a penalty or forfeiture where compensation can be made": Francis's Maxims cited by Priestly CJ in Austin v United Dominions Corporation Ltd [1984] 2 NSWLR 612 at 626, would seem apt, and see Meagher, Gummow and Lehane's Equity, para 18-055-010. 54 It follows that the plaintiff is entitled to the funds representing the net proceeds of sale of Mornington. 55 So far as the loan is concerned, I find that the plaintiff on the balance of probabilities has not repaid the $5,000, but only $2,000. I am not persuaded that there was any agreement for interest. The defendant is therefore entitled to judgment on her cross claim for $3,000 plus interest at 9% per annum pursuant to the Uniform Civil Procedure Rules, which will need to be calculated and which amount should be paid to the defendant out of the proceeds of sale of Mornington. 56 I will hear the parties on the question of costs and the form of final orders. ********** 04/04/2008 - Addition of judgment date - Paragraph(s) Headnotes 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.