New South Wales Supreme Court CITATION : Gray v O'Donnell [2009] NSWSC 259 HEARING DATE(S) : 27 February 2009 JUDGMENT DATE : 8 April 2009 JURISDICTION : Common Law JUDGMENT OF : Rothman J (i) That the judgment of the Local Court given at Sutherland on 8 February 2008 in the matter of Robert Peter Gray & Anor v Scott Thomas O'Donnell & Anor be quashed; (ii) The proceedings be remitted to the Local Court to be determined in accordance with law; DECISION : (iii) The defendants, jointly and severally, pay the plaintiffs' costs of these proceedings, as agreed or assessed; (iv) To the extent otherwise eligible, the defendants be granted an indemnity certificate pursuant to the Suitors' Fund Act 1951; (v) Liberty to apply be granted to each party on two working days' notice to the Court and other parties for any special or additional order either as to costs or to reflect the reasons for judgment herein. CATCHWORDS : CONTRACT – loan "payable on demand in writing" – construction of contract from its terms – debt not payable immediately, but only after service of demand – cause of action accrues when demand first occurs – proceedings in time - PRACTICE AND PROCEDURE – time limitation for debt payable on demand runs from date of advance of money – question of construction of contract – "payable on demand in writing" requires service of written demand – time runs from when demand first served – proceedings not time barred Conveyancing Act 1919 LEGISLATION CITED : Limitation Act 1969 Suitors' Fund Act 1951 CATEGORY : Principal judgment Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57; (2008) 83 ALJR 196 Benson-Brown v Smith [1999] VSC 208 Currabubula Holdings and Paola Holdings v State Bank of NSW [1999] NSWSC 276 D&J Fowler (Aust) Ltd v Bank of New South Wales [1982] 2 NSWLR 879 CASES CITED : Foley v Hill [1848] 9 ER 1002 Haller v Ayre & Anor [2005] QCA 224; (2005) 2 Qd R 410 Murphy v Lawrence [1960] NZLR 772 Ogilvie v Adams [1981] VR 1041 Re Brown's Estate [1893] 2 Ch 300 Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560 Robert Peter Gray (First Plaintiff) PARTIES : Narelle Jean Gray (Second Plaintiff) Scott Thomas O'Donnell (First Defendant) Bronwyn Jean O'Donnell (Second Defendant) FILE NUMBER(S) : SC 10984/2008 P Blackburn-Hart SC / P Bruckner (Plaintiffs) COUNSEL : J Hassett (Solicitor) (First Defendant) D Crawford (Solicitor) (Second Defendant) Kelvin Solari Solicitors (Plaintiffs) SOLICITORS : Hassett Dixon Solicitors & Attorneys (First Defendant) Moira Ryan Lawyers (Second Defendant) LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 181/2007 LOWER COURT JUDICIAL OFFICER : Farnan LCM LOWER COURT DATE OF DECISION : 8 February 2008 IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ROTHMAN J 8 APRIL 2009 10984/2008 Robert Peter Gray & Anor v Scott Thomas O'Donnell & Anor JUDGMENT 1 HIS HONOUR: Robert and Narelle Gray appeal a judgment of the Local Court determining that they were time-barred to proceed to recover money lent to their daughter and son-in-law. They lent $25,000 to their daughter, Bronwyn O'Donnell (the second defendant) and son-in-law, Scott O'Donnell (the first defendant), from 14 April 1997 to 21 April 1997. Interest was payable on the loan at the rate of 6% per annum and the defendants were jointly and severally liable for the original moneys advanced and interest. 2 The informal understanding of the parties was that the loan (and interest) would not be repayable, except under certain circumstances, one of which was that Mr O'Donnell and Mrs O'Donnell separated. The loan was secured by a mortgage over the property, which was purchased, in part, with the moneys advanced. That property was sold and another property purchased. 3 On 26 July 2007, orders were made making Mr O'Donnell the sole proprietor of the second property. On 13 October 2006 (by facsimile transmission), Mr and Mrs Gray demanded repayment of the $25,000 principal and interest of $18,924.31. The money was not paid and Mr and Mrs Gray commenced proceedings in the Local Court by a statement of claim dated 21 February 2007. 4 The proceedings were heard, and the Local Court magistrate issued her reserved judgment on 8 February 2008. Judgment was entered for the defendants. Mr and Mrs Gray appeal that judgment. The sole or principal reason that the learned magistrate came to the conclusion that Mr and Mrs Gray were not entitled to the moneys for which they sued, was that Mr and Mrs Gray were out of time to bring the suit. It is that issue that determines these proceedings. Facts 5 There was before the learned magistrate, and before this Court, a statement of agreed facts. It was in the following terms: "1. It is common ground that: a) the plaintiff's advanced a total of $25,000 to the defendants from 14 April 1997 to 21 April 1997; b) interest was payable at the compound interest rate of 6% per annum; c) the defendants were jointly and severally liable to the plaintiff for the original moneys advanced and interest; d) the moneys were repayable at call; and e) the defendants were jointly and severally liable to the plaintiffs for all costs of the plaintiff on account of any default by them. 2. The agreement was in writing signed by all parties. 3. The loan was secured by a mortgage over [address supplied]. 4. The monies advanced were used by the defendants to complete their purchase of the [address supplied] property. 5. In or about May or June 2003, the defendants purchased real property at [address supplied]. 6. In or about May or June 2003 the sale of the [address supplied] property was completed. 7. No proceeds of that sale were paid to the plaintiffs. 8. The proceeds of sale from the [address supplied] property, including moneys advanced by the plaintiffs, were used by the defendants to purchase or to repay finance used to purchase the [subsequent] property. 9. Pursuant to Family Court orders of 26 July 2007, the first plaintiff is now the sole registered proprietor of the [subsequent] property and retains the equity in that property. 10. No monies have been repaid." The addresses have been deleted by the Court for purposes associated with privacy. 6 Apart from the terms of the mortgage, to which I will shortly turn, only one other evidentiary issue is relevant. It is summarised in the course of her Honour's judgment below at [15]. It is necessary to recite the factual findings of her Honour after her Honour set out the agreed facts and issues (at least in part). Her Honour said: "10. There is no significant dispute as to the circumstances of the advancing of the original loan. The agreement to loan [sic] the money took place when Ms O'Donnell and her father Mr Gray were discussing the possible purchase of the property at [address supplied]. Mr Gray in paragraph 4 of his affidavit set out part of the conversation as follows 'The interest rate will be at "mates rates" of six per cent because that's what my father used to lend money to me at and the debt will be at call should your mother or I need it. The interest can be accumulated so you don't have to make any payment at this time but if there is a matrimonial problem between you both, your mother and I will call up the debt, OK, so I'll get a mortgage drawn up.' 11. After this conversation Mr Gray advanced the monies during the period 14 April 1997 to 21 April 1997. The mortgage document is dated 21 April 1997, but it appears to be common ground that it was not in fact signed by either of the defendants on that date as they were overseas on their honeymoon at the time. Mr Gray gave evidence that he chose that date for the mortgage as that was the final date of advancing of the money. 12. Mr Gray in his affidavit indicated that he could not recall any further discussions about the money until late 2002 when his daughter and son-in-law were looking to buy another house. 13. In cross-examination it was put to him by Mr Hassett on behalf of the first defendant that a conversation had taken place in 2000 in which he had said to Mr O'Donnell 'I don't want the $25,000 back'. He denied having that conversation. 14. Mr Gray was also cross-examined at some length about what might have caused him to call in the loan. His evidence was that apart from a matrimonial problem, the sort of need that might result in the loan being called in could have been 'If I become deceased and because I'm not financial, Narelle can't gain access to the money … they have to give Narelle some of that money if not all of that money you know rather than leave her there in limbo waiting to tidy things up. … it was designed to be a safeguard if we ever need it more than they did'. He went on to say 'If they won the lottery, I mean the money could be paid back'. 15. At paragraph 9 of his affidavit he said that in about January 2003 he had a conversation with Bronwyn in which she said 'Will you still continue to lend us that money if we buy another house?' And he replied 'So you want me to roll the total debt over, okay, and we'll stick to the same terms and conditions?' To which she replied 'Yes' and he said 'That will be okay and we won't have to draw up a new mortgage then'. 16. Mr Gray in cross-examination said that he believed that the original mortgage document would operate to provide some security for the $25,000 even after the loan had been 'rolled over' into a new property. Although the original mortgage had been drawn up by a solicitor, it does not appear that he sought or obtained any legal advice at this stage. He did not take any action to change the security on the mortgage. In re-examination in relation to the status of the loan in 2003 he said 'I understood that my mortgage was still secured and related to the new property, yes as a new loan' (TP 31.8). 17. He gave further evidence of a conversation with Bronwyn in October 2003 in which she asked him about the $25,000, after Scott had paid back money owed for the business he had bought from Mr Gray. His evidence is he said to Bronwyn 'Why would you pay it back until you had to. If he wants to pay it back, I'm happy to take it back at any time.' 18. On 13 October 2006 the plaintiffs made a formal written demand to each defendant for repayment of what was described in that document as the '$25,000 mortgage' (see annexure G to the affidavit of Robert Gray). The document attached to it a calculation of interest from 21 April 1997 through to 18 September 2006. It refers specifically to the terms of the mortgage, and indeed attaches the mortgage document." 7 As to the evidence of Mr Gray on the conversation in January 2003 between him and his daughter, the only cross-examination was at Transcript page 16, line 30-54, and was in the following terms: "Q. If you look at paragraph 9 of your affidavit, we now move forward to January 2003? A. Yes. Q. Do you see that? A. Yes. Q. And you alleged that your daughter said to you 'Will you still continue to lend us that money if we buy another house?'? A: Yes. Q. Was she asking you whether you were going to call up the loan at that time or not? A. No she was talking about, they were looking at another house, what did I want to do about the loan and I said well I'm quite happy to roll it over as a new loan. Q. And you said to her 'We'll stick to the same terms and conditions'? A. Yes under the same terms and conditions, yes, as a new loan under the same terms and conditions. Q. Well why is it a new loan, why have we got this situation, the loan's on foot? A. Yes. Q. We've just discussed you can call it up any time and one of the reasons you might call it up is if there's a matrimonial problem? A. Yes. Q. And that stands doesn't it, is that all there is to it? A. No it's a new property and that's why it's a new loan. Q. Well if it was a new property why didn't you take out a new mortgage? A. I thought I would have enough protection with the one I had, I'm not a solicitor, this was an insurance policy in the drawer." 8 Her Honour found, on bases more than adequately explained by her, that there was insufficient evidence to make a finding that a new loan was made in or about 2003. This finding of fact was challenged on appeal. 9 The challenge to the finding of fact was based upon the lack of cross-examination of the evidence, adduced through Mr Gray, as to the terms of the conversation. The conversation was alleged to have occurred between Mr Gray and his daughter Ms O'Donnell. Ms O'Donnell did not give evidence relating to the conversation. The learned magistrate considered, on this issue of detail, that the terms of the conversation, if they existed as recalled by Mr Gray, were not such as to create a new loan and did not consider that the plaintiffs had satisfied the onus of proving, on the balance of probabilities, that a new loan was effected in or about 2003. 10 This finding of fact was available to her Honour. Her Honour had the benefit of hearing and seeing the witnesses and, given the significance of the conversation, the business experience of Mr Gray, and the absence of supporting evidence from his daughter, I would, with respect to the learned magistrate, and without having heard the evidence adduced, probably have come to the same view. The terms of the original agreement 11 It is unnecessary to include, in these reasons for judgment, the totality of the agreement. The issue between the parties, as already stated, turns on the time limit for proceedings to commence. Relevantly, the agreement was in the form of a mortgage and annexure thereto. The annexure includes the following terms: "Firstly The Mortgagors, Scott Thomas O'Donnell and Bronwyn Jean Gray will pay to the Mortgagee the principal sum, or so much thereof as shall remain unpaid, on demand in writing. Secondly The Mortgagors will pay interest on the principal sum or on so much thereof as for the time being shall remain unpaid, and upon any judgment or order in which this or the preceding covenant may become merged at the rate of 6% per annum compounding on monthly rests [sic] until the principal sum shall be fully paid and satisfied." 12 According to annexure A to the mortgage, the terms of a memorandum (numbered Q860000) were included in the terms of the mortgage. The principal sum was, as already stated, $25,000. Clause 12 of the memorandum provided that service of any notice, required or authorised, may be effected in the manner permitted by s 170 of the Conveyancing Act 1919. Relevantly, s 170 of the Conveyancing Act requires service in person, or by other method bringing the notice to the attention of the person to be served. As earlier stated, a demand was sent by facsimile and was received on the date that it was sent. The receipt of the demand is not in issue. Time limits on loans payable on demand 13 Historically, the recovery of debt has, in general, been treated differently from damages for breach of contract. The exceptions generally apply to sums specified in liquidated damage clauses, being a pre-estimate, binding on the parties, of the amount of damage payable as a liquidated sum. But indebitatus assumpsit was not allowed to take over the work of a debt on an obligation or debt on record because, amongst other reasons, it was thought inconvenient to allow a jury trial on general issue when there was a deed or record of the debt. 14 Leaving aside the arcane distinctions between debt and indebitatus assumpsit, it is sufficient to note that neither relied upon breach of contract. It is, amongst other things, for that reason that it was for the defendant to prove, in an action for debt, that the debt had been satisfied. It was not for the plaintiff to prove that the money was still owing. This history, and its basis, is discussed in the joint judgment of Dixon CJ, McTiernan and Taylor JJ in Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560 at 563-566. After the discussion, their Honour's said: "A loan of money payable on request creates an immediate debt. Speaking of a promissory note payable on demand Parke B. in Norton v. Ellam [1837] EngR 183; (1837) 2 M & W 463 (150 ER 839), said: 'It is the same as the case of money lent payable upon request, with interest, where no demand is necessary before bringing the action. There is no obligation in law to give any notice at all; if you choose to make it part of the contract that notice shall be given, you may do so. The debt which constitutes the cause of action arises instantly on the loan. Where money is lent, simply, it is not denied that the statute begins to run from the time of lending' (at p 840). This was settled at the end of the seventeenth century, as appears from the report of Collins v. Benning (1700) 12 Mod 444 (88 ER 1440): 'In an indebitatus assumpsit , the plaintiff declared on a promise to pay on demand, and non assumpsit infra sex annos pleaded: To which the plaintiff demurred; because declaring on a promise on demand, he thought nothing was due till demand; and he should have pleaded non assumpsit infra sex annos after demand, or that no demand was within six years. Per Curiam. If the promise were for a collateral thing, which would create no debt till demand, it might be so; but here it is an indebitatus assumpsit , which shews a debt at the time of the promise, therefore the plea is good' (at p 1440). [ Young , supra, at 566-567.] The common law does not and never did conceive of indebtedness in a sum certain for an executed consideration as a mere breach of contract: it is rather the detention of a sum of money and that was so whether the creditor enforced his demand by an action of debt or by indebitatus assumpsit . Were it otherwise it would not be necessary for a defendant who sets up a plea of tender to bring into court the amount of the debt with his plea. The reason he must do so is that the tender answers only the breach of obligation alleged and not the debt. … [ Young , supra, at 567.] A debt recoverable under an indebitatus count was not and is not now conceived of simply as a cause of action for breach of duty or obligation. In other words it is a mistake to regard the liability to pay a debt of a kind formerly recoverable in debt or indebitatus assumpsit as no more than the result of a breach of contract, a breach which the creditor must affirmatively allege and prove. It is, too, a mistake to suppose that the general issue was always a plea doing no more than negativing the essential ingredients in the plaintiff's prima facie cause of action." [ Young , supra, at 569.] 15 This esoteric history has particular relevance to the matters that are now before the Court. In similar circumstances, Fullagar J, in Ogilvie v Adams [1981] V.R. 1041, was concerned to determine whether a cause of action for money lent was barred by the operation of the various limitation statutes. In turn, Fullagar J was required to determine when the cause of action accrued. In the proceedings in Ogilvie, the loan for the amount of money was said to be "a loan … repayable on demand." 16 His Honour, citing abundant authority and, with respect, in a most learned analysis, came to the conclusion that it has long been settled that "a mere statement or agreement that the money is repayable on demand (or request or at call) is not sufficient to contract out of that situation where all else is known of the terms of the contract is that A has paid money to B by way of loan. The lender's cause of action still arises instanter on the receipt of the money by the borrower, so that the lender's cause of action becomes statute barred at the expiry of 6 years after the receipt of the money." (Ogilvie, supra, at 1043.) 17 His Honour's conclusion arises from the historical position, see Queensland Trustees, supra, that the common law has always regarded the fact of indebtedness as a detention by the debtor of the creditor's money and not a breach of contract. However, his Honour, again with respect, correctly expressed the view that the rule is a rule of construction of the contract and not a rule of law that operates regardless of the terms of the contract. His Honour said: "But the contract rule … is a rule of construction in the sense that other words being part of the contract may drastically alter what would otherwise have been the meaning of the words in question." ( Ogilvie at 1050.) 18 Thus, the courts have long distinguished between a debt "payable on demand" and a debt which arises from a loan which is payable only on the satisfaction of a condition of some kind, including the satisfaction of a condition that a demand is actually made. It will very much depend upon the terms of the contract: see Re Brown's Estate [1893] 2 Ch 300 at 304-305; D&J Fowler (Aust) Ltd v Bank of New South Wales [1982] 2 NSWLR 879 at 882-883, 886 (per Helsham CJ in Eq); Murphy v Lawrence [1960] NZLR 772 at 774-775. 19 The contract here in question is not a contract between a bank and its customer. Such contracts have particular and peculiar conditions. It is understood that, in the case of banker/customer contracts, there must be a demand made before there is an obligation to repay: see Foley v Hill [1848] 9 ER 1002 at 1005-1006 per Lord Cottenham LC, referred to in Currabubula Holdings and Paola Holdings v State Bank of NSW [1999] NSWSC 276 at [760]. 20 The defendants seek to draw a distinction between a primary obligation between lender and borrower and secondary obligations relating to guarantees. There may or may not be such a distinction, but ultimately the question is one confined to a proper construction of the contract in question: see Benson-Brown v Smith [1999] VSC 208 at [132], in which Ashley J (as he then was) said: "Essentially, however, the question is one of the construction of the contract: see N. Joachimson v. Swiss Bank Corporation [1921] 3 K.B. 110, 129, where Atkin L.J. said: 'The question appears to me to be in every case, did the parties in fact intend to make the demand a term of the contract? If they did, effect will be given to their contract, whether it be a direct promise to pay or a collateral promise, though in seeking to ascertain their intention the nature of the contract may be material.'" 21 I accept, as did Keane JA (with whom De Jersey CJ and Mullins J agreed) in Haller v Ayre & Anor [2005] QCA 224; (2005) 2 Qd R 410, that the term "on demand" is a much settled term which, absent express words to the contrary (or words of necessary intendment), must be read as "immediately due", and as a consequence, the cause of action accrues at the time that the moneys are advanced. Conclusion 22 As earlier stated, the principle that should be adopted in the construction of this contract is the intention of the parties as evidenced by the terms of the contract. The subjective intention of the parties (or particularly the lender) that the demand would not be made unless particular circumstances arose, namely, inter alia, the divorce of the borrowers or the death of the lender, are not matters that can be taken into account in the determination of the proper construction of the contract: Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57; (2008) 83 ALJR 196. 23 In the contracts that must here be construed, the amounts are payable not "on demand" simpliciter, but "on demand in writing". Further, that demand may be served in accordance with s 170 of the Conveyancing Act. No issue arises as to the service, but the requirement that the demand be made "in writing" and be served in a particular manner, makes clear that the moneys advanced were not payable immediately, but payable only if and when a demand was made in writing. The question can be asked and answered by contemplating whether, on the face of the proper construction of this contract, the parties would consider that the amount was repayable without there ever having been a demand in writing for it. The answer, in my opinion, must be that they would not. The requirement for a demand to be made "in writing" was a condition precedent to the obligation to repay the amount. In other words, the obligation to repay was conditioned upon the service on the borrowers of a demand in writing for the moneys. 24 The demand for the payment of the moneys owing on the mortgage and/or loan was served on each of Mr and Ms O'Donnell on 13 October 2006, at which time the amount was payable by them and the cause of action accrued. On that basis, the statement of claim was not statute barred. The learned magistrate, with great respect to her Honour, was in error in dismissing the proceedings and giving judgment for the defendants, and orders should issue. 25 While there are issues associated with this loan and its possible effect on the division of property between Mr and Mrs O'Donnell in the divorce proceedings, those are issues that are better resolved by the Family Court of Australia. Those issues do not, and should not, affect the application of principle to the facts and the proper interpretation of the agreement between the parties to the loan. 26 There is one other matter that should be mentioned. In 2004, the NSW Law Reform Commission recommended an alteration to the Limitation Act 1969 to the then Attorney General. Such an alteration would, if accepted, amend the operation of the law by specifying that the limitation period for a loan, payable on demand, should run from the date on which a demand is first made. There is much to commend such an approach and no disadvantage associated therewith. Such an alteration would not alter the law relating to loans, but only extend the time before which any proceedings must be commenced to accord with common expectation. 27 The Court orders: (i) That the judgment of the Local Court given at Sutherland on 8 February 2008 in the matter of Robert Peter Gray & Anor v Scott Thomas O'Donnell & Anor be quashed; (ii) The proceedings be remitted to the Local Court to be determined in accordance with law; (iii) The defendants, jointly and severally, pay the plaintiffs' costs of these proceedings, as agreed or assessed; (iv) To the extent otherwise eligible, the defendants be granted an indemnity certificate pursuant to the Suitors' Fund Act 1951; (v) Liberty to apply be granted to each party on two working days' notice to the Court and other parties for any special or additional order either as to costs or to reflect the reasons for judgment herein. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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