Bernstone v Almack-Kelly
[2014] VSC 358
•6 August 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
No. 4720 of 2013
IN THE MATTER of an appeal under s 109 of the Magistrates Court Act 1989
| TERRY BERNSTONE | Appellant |
| v | |
| PHILIPPA ALMACK-KELLY | Respondent |
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JUDGE: | McMillan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 May 2014 | |
DATE OF JUDGMENT: | 6 August 2014 | |
CASE MAY BE CITED AS: | Bernstone v Almack-Kelly | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 358 | |
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ADMINISTRATIVE LAW — Appeal against decision of a Magistrate on a question of law — Whether Magistrate made finding on basis of no evidence — Whether denial of procedural fairness — Whether payer entitled to restitution — Change of position defence — Appeal dismissed — Magistrates Court Act 1989, s 109
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L Magowan | Schembri & Co |
| For the Defendant | Mr P Nicholas | Rodda Legal |
HER HONOUR:
On 2 February 2010 Mr Terry Bernstone, the appellant, transferred $24,000 from his own bank account to the bank account of Ms Philippa Almack-Kelly, the respondent. The payment was described on the payee reference sheet as ‘Loan1.Pmt Feb 2010’. The fact of the payment is undisputed. This case concerns whether the respondent has a legal obligation to pay some or all of that money back.
These proceedings
By complaint filed 2 October 2012, the appellant brought an action for debt against the respondent in the Magistrates’ Court of Victoria at Ringwood. After amendment at trial, the sum ultimately sought was for $27,372.75, being the principal sum advanced of $24,000 plus interest calculated in accordance with the Penalty Interest Rates Act 1983. The matter came before Magistrate Cashmore on 12 August 2013, and proceeded over three days. On 14 August 2013, his Honour dismissed the claim with costs.
On 11 September 2013 the appellant commenced proceedings in this Court seeking to appeal that decision pursuant to s 109 of the Magistrates Court 1989. The amended notice of appeal seeks that judgment be entered for the appellant with costs, or else that the decision of the magistrate be quashed and the matter be determined in this Court or remitted for hearing. At the hearing before me, counsel agreed that the matter should be determined in this Court, rather than be remitted.
The background to the dispute
The respondent’s mother is Ms Jacqui Almack-Kelly. The appellant met Jacqui Almack-Kelly in December 2009 on an internet dating site, and by January 2010 they were engaged and living together. In August or September of 2010, they fell out, and although their relationship continued in some form for nearly another two years, it ended entirely in July 2012.
Jacqui Almack-Kelly was entered into the National Personal Insolvency Index as bankrupt on 9 September 2008 and was discharged on 7 October 2011. At the time the relevant transaction occurred, she was therefore an undischarged bankrupt. The appellant was aware of this from January 2010.
Personal Care Victoria Pty Ltd was a company limited by shares registered in Victoria on 7 December 2006. It was deregistered on 3 May 2009. The only shareholder was Mr Kristian Gordon Stapley, the son of Jacqui Almack-Kelly and the respondent’s half-brother. The appellant’s evidence was that he first heard of this company in late February or March 2010, after the relevant transaction occurred. His evidence was also that he met Mr Stapley for the first time in March or April 2010.
The loan
The appellant in his pleadings alleged that:
By an agreement between the [appellant] and the [respondent], the [appellant], at the request of the [respondent], supplied the [respondent] with a personal loan in consideration for full repayment by the [respondent].
In the particulars in support of that allegation, the appellant alleged that the agreement was partly oral and partly implied, and to the extent that it was oral, it was contained in a conversation between the appellant and the respondent in or around February 2010.
The appellant gave evidence that, in a conversation with Jacqui Almack-Kelly, she said to him that she needed him to lend the respondent $24,000 for school fees.
Jacqui Almack-Kelly denied that this conversation took place, and said that she did not discuss anything about school fees with the appellant. She conceded that in January 2010 she did discuss with the appellant that he was to pay $24,000 into the respondent’s bank account. Her evidence was that the money was being transferred as part-payment of a deposit of $25,000 for the purchase of Personal Care Victoria.
The appellant gave evidence that in around February 2010 he said to the respondent:
I have been asked to loan you $24,000 for educational requirements. Could you please give me your bank details so I can transfer the money? I’m making you the loan for $24,000. It will be interest free because of the relationship with your mother and payable on demand when your father receives his inheritance. I will need your bank details.
His evidence was that she responded ‘Thank you’ and that he then walked away.
In her notice of defence, the respondent denied that the conversation in question took place, and denied that she ever requested the appellant to supply her with a personal loan. In her evidence, the respondent again denied that any such conversation occurred. She denied that she had any conversation with the appellant about a loan, or had never asked him for a loan. Her evidence was that she was told by her mother that $24,000 would be going into her account from the appellant to purchase Personal Care Victoria.
The learned magistrate’s findings rested primarily on his assessment of which witness he believed in relation to the two conflicting stories:
I found [the respondent] to be an excellent witness. I believe her. I do not believe the plaintiff on that issue. She came across, as far as I’m concerned, as an honest witness and her version is far more likely concerning the $24,000. It’s not clear to me exactly what the $24,000 really was for. I’ve got no doubt it involved some arrangement between the plaintiff and Jacqui about the purchase of PCV, connected with PCV. I’m having difficulty in accepting precisely what it was, but I would totally reject — I find the defendant, as I said, to be an honest witness.
The purchase of Personal Care Victoria
In her notice of defence, the respondent alleges that:
The [appellant] purchased the business ‘Personal Care Victoria’ from the [respondent]’s brother Kristian Stapley for a sum of $24,000 around February 2010. The funds were to be deposited into the [respondent]’s bank account.
The respondent admitted that she has no personal knowledge of whether the appellant purchased Personal Care Victoria, but said that she had been told so by family members, including Jacqui Almack-Kelly.
The appellant denied that the transfer was for the purchase of Personal Care Victoria. He gave evidence that he had no knowledge of the existence of Personal Care Victoria at the time of the transfer on 2 February 2010, and did not have any conversations with the half-brother of the respondent, Mr Stapley.
No evidence was given by Mr Stapley.
Jacqui Almack-Kelly gave evidence that the appellant agreed in a conversation with her to purchase Personal Care Victoria for $50,000, with the deposit being $25,000. She also gave evidence that the appellant knew by January 2010 that Personal Care Victoria had been deregistered. She refused to answer questions in relation to her management of Personal Care Victoria, on the basis that such an answer might expose her to penalty.[1]
[1]Relying on s 128 of the Evidence Act 2008.
Mr Kelly, the respondent’s father, gave evidence that he had a conversation with Jacqui Almack-Kelly in relation to the sale of Personal Care Victoria to the appellant, but did not give any evidence of any such conversations between himself and the appellant.
The grounds of appeal
Pursuant to orders made by Lansdowne AsJ on 6 November 2013, the appellant filed an amended notice of appeal on 12 November 2013. In that notice, the appellant submitted that:
(a)The learned magistrate erred in law in finding the payment of $24,000 from the appellant to the respondent related to an agreement for the sale of Personal Care Victoria and thus rejecting the appellant’s evidence that the payment was by way of loan, in circumstances in which there was no evidence of this (and there could not have been any evidence of this); and
(b)The learned magistrate denied the appellant a right to be heard in relation to his alternative restitutionary claim and gave judgment dismissing the claim before hearing the appellant’s submissions in relation to the alternative claim.
Those grounds were substantially relied upon at the hearing. The alternative restitutionary claim was put in two ways by counsel for the appellant, both of which were relied upon at hearing: first, on the basis that the appellant genuinely believed that the payment was a loan; and, secondly, on the basis that the payment was subject to a mistake or a total failure of consideration.
The first ground of appeal
The appellant submitted that in the passage of his reasons set out above the learned magistrate made a factual finding that:
I’ve got no doubt [the $24,000] involved some arrangement between the plaintiff and Jacqui about the purchase of PCV, connected with PCV.
It was submitted that there was no evidence to support this finding, and that this finding underpins the conclusion that the payment was not a loan. It was submitted that there was no evidence to support a finding that there was an agreement or arrangement to this effect. It was further submitted that no such arrangement could have been entered into, as Personal Care Victoria had been deregistered at the time of the payment.
The respondent submitted that the fact that Personal Care Victoria had ceased to exist, and that therefore any arrangement could not have had any legal effect, did not necessarily lead to an acceptance of the appellant’s evidence as to the conversations he alleged he had had with the respondent and her mother. The point made by the respondent was that the magistrate was not satisfied, on the evidence before him, that there was a loan as between the appellant and the respondent such that the respondent was liable to repay the $24,000 to the appellant.
I accept the submission of the respondent on this point. The finding of fact made by the magistrate in the passage set out above was not that the payment of $24,000 was a result of an arrangement to purchase Personal Care Victoria, it was that the appellant’s evidence as to the conversation between himself and the respondent should not be accepted. Without evidence that there was agreement by the appellant to accept a loan, and an agreement by the respondent to accept the obligation to repay the loan,[2] the magistrate could not be satisfied there was a loan.
[2]Whether expressly or impliedly.
The first ground of appeal must fail.
The second ground of appeal
The second ground of appeal is that the learned magistrate refused to hear the appellant on his restitutionary claim and thereby denied the appellant procedural fairness. The appellant relies on several exchanges between bench and bar set out in the transcript:
MR MAGOWAN: I might come back in relation to what’s been troubling you throughout, which is the second part of the claim and this is obviously ---
HIS HONOUR: I think it might be better if I tell you what my decision is in respect of the first part of it.
MR MAGOWAN: If it goes one way, I don’t need to go any further.
The appellant submitted that the learned magistrate, purporting to deliver his decision on the first point, effectively gave judgment in respect of the appellant’s entire claim, including the restitutionary claim. The learned magistrate said:
In my view it would be totally wrong to let the defendant’s [sic] case rest upon the second aspect when I don’t believe in respect of the first and then rely upon material on the amended statement of claim which he totally disavows, so I would find against the plaintiff and find in favour of the defendant.
At the conclusion of the learned magistrate’s judgment, the following exchange took place:
MR MAGOWAN: Your Honour, by way of clarification, I understood that you wanted to give a judgment in respect of the first part of the claim. Are you effectively — I wasn’t given an opportunity to make submissions in relation to the second part of the claim.
HIS HONOUR: Your problem there is that I would say — if I reject his account, which I do, that he well knows that the $24,000, on my finding, was put into that account with the concurrence of Jacqui related to and connected with that company, it can’t be good law that I can order the defendant, who I find to be blameless, to make restitution to him for those figures and the change of situation referred to is just part of that reason, but it’s more. She hasn’t been unjustly enriched at all, in my view.
MR MAGOWAN: I don’t mean to be ---
HIS HONOUR: As I said, the real answer to this is that he may will argue that he’s been misled by Jacqui and he has pursued a particular course because of what he believed the situation was by her, but not by the daughter. It wouldn’t make sense then that I order a 19-year-old person, who I find to be blameless, to restore the $24,000 or any part thereof to someone who I find was not telling the truth for the claim that he launched and then seeks to recover on a defence that I don’t think should have been raised in the first place anyway, but it was raised. To change the position is just a factor in that decision.
MR MAGOWAN: Here is my issue, Your Honour. You told me that you wanted to give judgment in relation to the first element.
HIS HONOUR: Right, okay.
MR MAGOWAN: I accept the fact that I’m not now going to ---
HIS HONOUR: I probably made an error there. You’re not going to persuade me. I’m not unmindful of what you were going to say, the substance of it.
MR MAGOWAN: But I do ---
HIS HONOUR: Sorry, go ahead. In the light of my findings, how could I possibly, by way of applying equity, make the orders sought? How could I possibly? I’m happy to hear the argument. If I’m wrong, you can set me right. If I’m wrong ---
MR MAGOWAN: Well I think you’ve made your judgment, Your Honour.
HIS HONOUR: I should have allowed further development of it. I accept that.
MR MAGOWAN: If Your Honour pleases. I can’t ---
HIS HONOUR: But I’m happy if you now indicate where I’m wrong, that’s the better way of doing it.
MR MAGOWAN: I don’t think it’s ---
HIS HONOUR: No, we can’t have it both ways. I can see the fact that I should have allowed further submissions on it, I shouldn’t have done so, but I’ve done so. But I’m happy for you to put where I’m wrong in the exercise of the discretion, where I’m wrong in law, put it on the paper now for the record and if you don’t it’s going to make it more difficult. If you want to take this matter further, I’m inviting you to say where I was wrong. I accept the fact that I should have allowed more submissions on it, but I want you to put now is what I failed to consider as being a factor.
MR MAGOWAN: I don’t think I can, Your Honour.
HIS HONOUR: I’m happy if you do. I’m inviting you to.
MR MAGOWAN: No, I don’t think I can.
HIS HONOUR: I think you’d be kicking into a very strong wind with a heavy ball in the light of my findings of fact.
MR MAGOWAN: If Your Honour pleases.
The appellant now submits that the learned magistrate was functus officio once he had delivered his judgment, with the effect that counsel could not make further submissions.
The respondent submitted that in practice there was no lack of procedural fairness because the appellant was not deprived of the possibility of a successful outcome. The learned magistrate would have been bound to reject the appellant’s submissions.[3]
[3]Barbaro v The Queen [2014] HCA 2, [65].
I am satisfied on the basis of the transcript set out above that the learned magistrate failed to entertain the appellant’s alternative restitutionary claim and therefore denied the appellant procedural fairness. It cannot be said that, had the learned magistrate heard the appellant’s submissions on the restitutionary claim, there could have been no difference to the outcome of the proceeding.[4] The denial of procedural fairness constitutes an error of law.
[4]Stead v State Government Insurance Commission (1986) 161 CLR 141, 147; Re Refugee Tribunal; ex parte Aala (2000) 204 CLR 82, 88–9 (Gleeson CJ); 116–7 (Gaudron and Gummow JJ).
As the parties agreed that, if I concluded there had been a denial of procedural fairness, I should decide the matter myself on the basis of the evidence, rather than remit the matter for retrial,[5] I shall therefore consider the submissions made on the appellant’s alternative restitutionary claim.
[5]Transcript of Proceedings, Bernstone v Almack-Kelly (Supreme Court of Victoria, McMillan J, 29 May 2014) 39–40.
The first basis: the appellant mistakenly believed that the payment was a loan
The first basis upon which the appellant’s restitutionary claim was put was that the appellant made the payment in the mistaken belief that it was paid pursuant to a loan. Accordingly, the respondent is under an obligation to make restitution of the payment.
To establish that the respondent has a prima facie obligation to make restitution, the appellant must point to the existence of a qualifying or vitiating factor that renders retention of the payment unjust, for instance, that it was paid under a mistake of fact or law.[6] Therefore, the appellant must prove that when he paid the $24,000 to the respondent he genuinely believed that it was paid pursuant to a loan agreement.
[6]David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 162 CLR 221, 379.
The appellant gave evidence that he had a conversation with Jacqui Almack-Kelly in which she requested that he lend the respondent $24,000.[7] He gave further evidence that he discussed the loan with the respondent.[8] Jacqui Almack-Kelly[9] and the respondent[10] denied that these conversations ever took place. Although no express finding was made on what exactly the payment of $24,000 was for, I note that the learned magistrate, who had the considerable advantage of hearing the parties’ evidence viva voce, did not believe the appellant’s account of events and accepted the corroborative accounts of Jacqui Almack-Kelly and the respondent. The learned magistrate described the respondent as an ‘excellent witness’ and an ‘honest witness’.[11]
[7]Transcript of Proceedings, Bernstone v Almack-Kelly (Magistrates’s Court of Victoria, Cashmore, 12 August 2013) 61.
[8]Ibid 63–4.
[9]Transcript of Proceedings, Bernstone v Almack-Kelly (Magistrates’s Court of Victoria, Cashmore, 14 August 2013) 223.
[10]Transcript of Proceedings, Bernstone v Almack-Kelly (Magistrates’s Court of Victoria, Cashmore, 13 August 2013) 184.
[11]Transcript of Proceedings, Bernstone v Almack-Kelly (Magistrates’s Court of Victoria, Cashmore, 14 August 2013) 346.
Against the evidence of the respondent and her mother, the only evidence the appellant adduces in favour of his belief that the payment was a loan is his assertion and the description of the payment on the payee reference sheet as ‘Loan1.Pmt Feb 2010’. On the basis of the credit findings of the learned magistrate, I accept the evidence of both Jacqui Almack-Kelly and the respondent that neither of them had a conversation with the appellant in which the payment was described as a loan. I also take into account the way in which the respondent treated the $24,000 once it was in her account, in which she made payments out at the direction of her mother and father. In my opinion, that is inconsistent with its being a loan; rather, it accords with her account of events.
Upon examining the evidence led at trial, I am satisfied that the appellant has failed to prove that he genuinely believed that the payment was a loan. The overwhelming weight of the evidence points to the opposite conclusion. If no conversation occurred in which the payment was described as a loan, I find it difficult to accept that the appellant could have formed the sincere belief that the payment was a loan. Put another way, in order to make a finding that the appellant genuinely believed that the payment was a loan, having accepted the account of Jacqui Almack-Kelly and the respondent, I must conclude that the appellant formed that belief despite the fact that that understanding was never confirmed by the recipient of the loan or discussed with Jacqui Almack-Kelly. That is an absurd conclusion.
Accordingly, I find that the appellant has failed to establish that the payment was made upon a mistake of fact giving rise to an obligation on the respondent to make restitution. The first basis of the restitution claim therefore fails.
The second basis: the appellant mistakenly believed that Personal Care Victoria continued to exist
Counsel for the appellant submitted that, if the payment was for the purchase of Personal Care Victoria, the appellant is entitled to restitution because it was made under a mistake, viz, that the company still existed and owned assets.[12] Again, the appellant, to establish a claim for restitution of a mistaken payment, must identify the existence of a mistake causative of the payment.[13]
[12]The appellant did not press the total failure of consideration argument.
[13]David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 162 CLR 221, 379.
The appellant did not plead that he paid the $24,000 in order to purchase Personal Care Victoria or that, when he paid that amount, he even knew of its existence. The onus is on the appellant to prove that he made the payment in the belief that Personal Care Victoria still existed. On the appellant’s own evidence, at the time that he made the payment to the respondent, he was unaware that Personal Care Victoria had ever existed.[14] The appellant relies on the following argument:
1)the payment was for the purchase of Personal Care Victoria;
2)Personal Care Victoria did not exist at the time of the payment;
3)it may be inferred from (1) that, at the time of the payment, the appellant believed that Personal Care Victoria existed; therefore
4)the appellant made the payment upon the mistaken belief that Personal Care Victoria existed.
The difficulty with this argument is premise (1). As counsel for the appellant submitted, and I agree, it cannot be concluded on the balance of probabilities that the payment was made for the purchase of Personal Care Victoria. Accordingly, that factual premise cannot form the basis of an inference that the appellant held the belief that Personal Care Victoria existed. No other evidence was led by the appellant in support of the purported belief. Indeed, the appellant denied that he knew of Personal Care Victoria’s existence at the time of payment. There is therefore no evidence upon which the Court can conclude that the appellant held the belief for which counsel now contends.
[14]Transcript of Proceedings, Bernstone v Almack-Kelly (Magistrates’s Court of Victoria, Cashmore, 13 August 2013) 133.
The second basis for restitution must therefore fail.
Change of position
Had I accepted either of the bases for restitution advanced by the appellant, I nonetheless consider that the respondent has made out the defence of change of position in part. A court will not order restitution if ‘the defendant has acted to his or her detriment on the faith of the receipt’.[15] The question for the Court is whether the respondent has changed her position in such a manner that an obligation on her to make restitution of the $24,000 would be inequitable. The respondent must show that she, having altered her position on the assumption that she was entitled to apply the money as she did, would suffer detriment if she were now ordered to make restitution of the $24,000.[16] That detriment must flow from her reliance upon the assumption that she was entitled to apply the money in the manner that she did.[17] There is no requirement that the recipient have received information from the payer — here the appellant — that, if true, entitled her to deal with the receipt.[18]
[15]David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 379 (emphasis in original).
[16]Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14 (7 May 2014) [84]–[85].
[17]Ibid [86]–[87].
[18]Hills Industries Ltd v Australian Financial Services and Leasing Pty Ltd (2012) 295 ALR 147, 192–3 (Meagher JA).
The respondent gave evidence of several payments out of her account made at the direction of her mother and father.[19] Counsel for the appellant agreed that those payments were made upon the instructions of the respondent’s mother and father.[20] The unchallenged evidence of the respondent was that the following payments were made at the direction of her parents:
[19]Transcript of Proceedings, Bernstone v Almack-Kelly (Magistrates’s Court of Victoria, Cashmore, 13 August 2013) 188–195.
[20]Transcript of Proceedings, Bernstone v Almack-Kelly (Supreme Court of Victoria, McMillan J, 29 May 2014) 16.
(a)$700 cash withdrawal;
(b)$5000 to a Personal Care Victoria account;
(c)$5000 to a Personal Care Victoria account;
(d)$680 to Worrells Solvency & Forensic Accountants;
(e)$5000 to a Personal Care Victoria account;
(f)$1000 to the respondent’s father;
(g)$3350 to a Personal Care Victoria account; and
(h)$600 to a Personal Care Victoria account.
The sum of the above amounts is $21,230, which is $2770 short of the amount of the receipt, $24,000.
The respondent also paid out $1900, at the direction of her mother, into another account of hers. This amount constituted repayment of a loan of the same amount for the respondent’s brother’s 21st birthday party. There is no evidence that the respondent changed her position in respect of this amount such that repayment of it would enure to her detriment.
The respondent suggested that a certain proportion of the remaining $870 (being $24,000 less the payments out totalling $21,230 and the repayment to herself of $1900) may have been paid out at her parents’ direction; however, in the absence of clear evidence in support that contention, I am unable to conclude that the respondent changed her position in respect of that proportion of the receipt. Although the change of position defence in Australia does not involve an arithmetic process of ‘enrichment’ and subsequent ‘disenrichment’,[21] I am not satisfied that the respondent would suffer a detriment if she were forced to repay $870 of the receipt.
[21]Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14 (7 May 2014) [78].
I am satisfied that, in making the above payments out of her bank account totalling $21,230, the respondent changed her position on the faith of the receipt. That change of position was made on the assumption that she was entitled to deal with the receipt in that manner. I am satisfied, having regard to the learned magistrate’s credit findings, that the respondent’s account is truthful: that she believed in good faith that she was entitled to deal with the receipt and that the receipt was not subject to the obligation to repay it pursuant to a loan agreement.
The fact that the payments out were made at the direction of the respondent’s mother and father does not mean, as the appellant contends, that those payments were not made in reliance on her receipt of the money. The critical point is that the respondent relied on the assumption that she was entitled to apply the money as she did. The assumption upon which the respondent was operating was that she was to hold the money to be paid out at the direction of her mother or father. It is the detriment that would flow from the desertion of that assumption that the change of position defence protects against.[22]
[22]Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14 (7 May 2014) [85].
I reject the appellant’s argument that the respondent would not suffer detriment because, if she were ordered to make restitution, she could simply ask her mother and father to repay to her the amounts paid out at their direction. That assertion was unsupported by evidence. There is no evidence to suggest, in particular, that the respondent’s mother, father or Personal Care Victoria are either willing or able to repay those amounts. It may be that they have dissipated.
For the foregoing reasons, I conclude that, even if the respondent were under a prima facie obligation to make restitution — on the first or second basis — she has so altered her position in detrimental reliance on the faith of the receipt that it would be inequitable to order her to repay $21,230 of that receipt. It follows that, were it necessary, I would order that the respondent make restitution in the amount of $2770.
Orders
I have concluded that both the first and second grounds of appeal must fail. Accordingly, I order that the appeal be dismissed. I shall hear the parties on the form of order and costs.
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