Erceg v Erceg [No 2]
[2018] WASC 9
•18 JANUARY 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: ERCEG -v- ERCEG [No 2] [2018] WASC 9
CORAM: ALLANSON J
HEARD: 22 AUGUST 2017
DELIVERED : 18 JANUARY 2018
FILE NO/S: CIV 1544 of 2015
BETWEEN: TIMOTHY ERCEG
Plaintiff
AND
JOHN ERCEG
First DefendantREGISTRAR OF TITLES
Second Defendant(BY ORIGINAL ACTION)
JOHN ERCEG
Plaintiff by CounterclaimAND
TIMOTHY ERCEG
Defendant by Counterclaim(BY COUNTERCLAIM)
Catchwords:
Contract - Where oral loan agreement between brothers - Where history of loans between them - Whether running account - Whether repayable on demand
Contract - Repayment of loans - Where multiple outstanding loans - Whether partial repayment attributed to particular loans
Practice and procedure - Limitation - Where loans repayable on demand - Whether cause of action accrued before operation of Limitation Act 2005 (WA)
Practice and procedure - Where plaintiff does not attend trial - Determination of counterclaim
Property law - Tenant at will - Where purported sublease - Whether tenant liable for rent received from subtenant
Legislation:
Limitation Act 1935 (WA), s 38, s 44
Limitation Act 2005 (WA), s 59
Result:
Judgment for the plaintiff by counterclaim
Category: B
Representation:
Original Action
Counsel:
Plaintiff: No appearance
First Defendant : Ms E C Hensler & Ms K Woods
Second Defendant : No appearance
Solicitors:
Plaintiff: No appearance
First Defendant : Michael Paterson & Associates
Second Defendant : No appearance
Counterclaim
Counsel:
Plaintiff by Counterclaim : Ms E C Hensler & Ms K Woods
Defendant by Counterclaim : No appearance
Solicitors:
Plaintiff by Counterclaim : Michael Paterson & Associates
Defendant by Counterclaim : No appearance
Case(s) referred to in judgment(s):
Airservices Australia v Ferrier (1996) 185 CLR 483
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Erceg v Erceg [2017] WASC 267
Giacci v Giacci Holdings Pty Ltd [2010] WASCA 233
Gray v O'Donnell [2009] NSWSC 259
Helton v Allen [1940] HCA 20; (1940) 63 CLR 691
Meriton Apartments Pty Limited v The Owners Strata Plan No 72381 [2015] NSWSC 202
Santos Coffee Co Pty Ltd v Director Freight Express Pty Ltd [2010] NSWCA 14
ALLANSON J: John and Timothy Erceg are brothers. They also carried on business in a partnership under the name the Tread Easy Partnership. Their financial dealings included, over a long period, making loans to each other.
In about 2015, the brothers were in dispute over the ownership of a home unit in Carlisle. John was, and is, the registered proprietor. Timothy lodged a caveat on the title and brought proceedings claiming to be the owner in equity. John opposed that claim and counterclaimed.
The claim and counterclaim were heard together. Timothy did not attend the trial. I gave judgment for John immediately on the claim. These are my reasons for allowing his counterclaim.
The counterclaim
John's counterclaim has these components:
Outstanding loans
John alleges that at 12 February 2016, Timothy owed him a total of $424,522.37 plus interest for unpaid loans: par 31. He pleads:
(1)that between 2004 and 2006 he advanced various sums to Timothy as loans, $63,500 of which has not been repaid: pars 24 ‑ 26; and
(2)between 19 June 2008 and 20 July 2011, he advanced further loans which have not been repaid: pars 27 ‑ 30.
Amounts relating to 79C Planet Street, Carlisle
John also claims further amounts relating to the property that was the subject of the claim:
(1)$47,625 for rent received by Timothy leasing the Carlisle property without his consent: pars 35 ‑ 44;
(2)$11,722.11 the costs of evicting the tenants, including legal costs and repairs: par 46; and
(3)$23,906.02 for rates and taxes, pursuant to an oral agreement: par 47.
The loans
John pleads that between about 1980 and 2011, he and Timothy advanced money to and from each other. The agreements were oral. Money was advanced at request on the promise to repay. The loans were repayable on demand 'or otherwise as agreed from time to time'. Interest would be payable at the cost of the money payable by the lender to his financial institution.
John alleges that the following amounts were advanced. I have stated the purpose of the loan where that is admitted:
1.$6,000 on 17 January 2004;
2.$10,000 on 21 September 2004;
3.$8,000 on 28 January 2005;
4.$9,000 on 21 June 2005;
5.$30,500 on 11 March 2006 for the purchase of land in Nedlands;
6.$140,000 and $60,000 on 24 May 2006 for the purchase of the Nedlands land;
7.$26,693.80 on 19 June 2008 for the purchase of land in Arizona;
8.$20,000 on 18 July 2008 for servicing Timothy's loan with respect to the Nedlands land; and
9.$314,328.57 on 20 July 2011, in satisfaction of a judgment debt.
Timothy admits that amounts were advanced, and in three instances the purpose of the advance, but otherwise denies John's plea. Timothy pleads that John had the day to day management and control of the brothers' partnership and its finances. He states that John would unilaterally characterise amounts paid to each of them as partnership drawings or loans. Timothy further pleads that the parties did not expressly agree repayment terms or interest, and the loans were repayable at call.
Timothy specifically addresses each of the amounts claimed, pleading:
(1)he received the amounts claimed in counterclaim par 26(a) ‑ (d), but those claims are barred by s 38 of the Limitation Act 1935 (WA);
(2)on 24 May 2006, John advanced the two amounts totalling $200,000 pleaded in par 26(f) and (g), but the sum was repaid on or about 10 May 2011 by a cheque into the partnership bank account; and
(3)he received $30,500 as pleaded in par 26(e) and three amounts in June and July 2011, as pleaded in par 28. Timothy says those amounts were not subject to any express agreement, and in the absence of agreement ought to have been paid by the partnership by way of drawings or a partnership loan.
Timothy further pleads that it would be inequitable to determine John's claim in isolation from the partnership accounts, under which he may be entitled in equity to a set off: par 17. He has, however, prosecuted no claim in relation to the partnership.
In his reply, John pleads that the advances made to Timothy were a running account. He also relies on s 59 of the Limitation Act 2005 (WA).
The Carlisle property
John is the registered proprietor of the Carlisle property. He pleads that, during 2010, he agreed to permit Timothy to reside there rent free. John pleads that from 6 May 2012, Timothy leased it to tenants.
Timothy admits that he leased the property on the terms alleged by John, and admits receiving rent of $45,250 between 6 May 2012 and 21 March 2014. In the action, Timothy claimed to be the beneficial owner of the Carlisle property on alternative grounds: that John is estopped from denying that Timothy has that interest; or that John holds title subject to a constructive trust on behalf of Timothy.
Timothy denies the claims for the costs of evicting the tenants and for rates and taxes.
The evidence
Timothy did not attend the trial. I have set out the circumstances and my reason for proceeding in his absence in the judgment on the claim: see Erceg v Erceg [2017] WASC 267.
The only evidence adduced at trial was:
(1) the testimony of John in a witness statement confirmed and in some small matters explained on oath;
(2)the testimony of Jagoda Sisaric, John and Timothy's sister, who also provided a witness statement and confirmed it on oath; and
(3)a book of trial documents.
Timothy had been given notice of the witness statements and trial documents. With the trial proceeding ex parte, I made rulings regarding admissibility and admitted the witness statement of each witness subject to those rulings.
The evidence of John
John said that he and Timothy lent money, each to the other, as and when the need arose. In par 9 of his witness statement, John said that normally the borrower agreed to repay the money advanced, and the loans were repayable 'at the earliest available opportunity or as and when requested by the lender'. Interest was payable on the money advanced 'at the cost of [the lender's] financial institution's interest rate'.
Timothy does not dispute that the amounts claimed were advanced to him. I am satisfied on John's evidence, and the documents showing the funds came from his bank account, that the amounts advanced on 17 January 2004, 21 September 2004, 28 January 2005 and 21 June 2005, were paid from John's Suncorp Accounts. I am satisfied that they were personal loans and not partnership advances.
The amount advanced on 11 March 2006 was also a loan by John out of his account. The two sums advanced on 24 May 2006, $200,000 in total, were paid by Russell Frost, at John's direction, and in payment of money Mr Frost owed to John (ws 34). Similarly, the payment on 19 June 2008 was made by Mr Frost as a payment on behalf of John (ws 36). Again, I am satisfied on John's evidence that the money was from him and not partnership funds.
On 18 July 2008, John paid a further amount from his own account.
On 20 July 2011, the payment was by a bank cheque from John's account. I am satisfied that John advanced the money.
The only evidence of a running account is that John testified that, on about 10 May 2011, Timothy paid $220,000 into the partnership's account and instructed John to take $200,000 in reduction of the amounts Timothy owed to John at the time. John said he withdrew $200,000 'and used it to reduce the then outstanding debts that Timothy owed to me, with the balance of what Timothy owed to me being $63,500' (ws 51).
John also said that in 2012, he compiled a list of loans that he had made to Timothy. That document is headed 'Loans to Tims Account ‑ 12/1/04 to 15/12/12'. It is based on a flat rate of interest at 7%, which is neither the rate pleaded, nor the rate (7.73%) stated in the Suncorp Bank statements for 2011. The list was compiled at Timothy's request for John to give him details of what he owed.
John testified that at a meeting in late January 2013, Timothy agreed with at least some of the amounts on the list. It is not necessary to consider the detail of that admission, as the amounts are not disputed. On John's evidence, Timothy did not question that the amounts were owed to John and not to the partnership.
John also testified as to the arrangements under which Timothy was permitted to reside at the Carlisle property. John said that he allowed Timothy to stay, rent free, because he was his brother, 'as a favour with no legal obligation to do so'. In about July 2013, he became aware that another person, Bill Dunlop, was living at the unit. It was around then that the dispute about ownership of the Carlisle property escalated.
In February or March 2014, John arranged for his lawyers to demand delivery of vacant possession of the property. In August, he engaged a locksmith to provide him with access to the unit. It was then vacant. John arranged for the locks to be changed.
The evidence of Ms Sisaric
The evidence of Ms Sisaric was limited, due to her limited knowledge of and involvement in these affairs. I have not found her evidence assists in relation to any questions of fact where there is some uncertainty on the evidence.
Consideration
The loans
Each element of a cause of action must be proved to the reasonable satisfaction of the court; the court 'must feel an actual persuasion of its occurrence or existence': Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, 361 (Dixon J); Helton v Allen [1940] HCA 20; (1940) 63 CLR 691, 712 (Dixon, Evatt & McTiernan JJ). Where the plaintiff relies upon an oral agreement, the court must be satisfied that there is sufficient evidence to support a positive finding that such an agreement was made.
Timothy admits the receipt of all of the amounts for which John claims. He does not admit receiving all of them as loans from John. But I accept the evidence of John, supported by the bank documents for those loans which came from his Suncorp Bank account. I am satisfied that each of the amounts claimed was a loan from John and not a partnership advance.
John pleads that the loans were repayable on demand or as otherwise agreed: counterclaim par 25. Timothy denies that plea. The only evidence is John's statement that normally the loans were repayable at the earliest available opportunity or as and when requested by the lender.
Whether a sum advanced is repayable on demand, or whether there is a condition which must be satisfied before the obligation to repay arises, is generally a question of construction. Where there is insufficient evidence of the terms of any agreement, I understand the position is that the obligation to repay arises immediately: see Gray v O'Donnell [2009] NSWSC 259 [15] ‑ [18], (Rothman J). That is the result of the evidence here. I am satisfied that the amounts were repayable on demand as pleaded.
In his reply, John pleads that the loans were a running account. That plea responds to Timothy's plea that the period of limitation of six years had elapsed for the first four loans.
Limitation issues
The limitation period under s 38 of the Limitation Act 1935 is six years. These proceedings commenced in 2015.
Counsel for John, in written submissions, argued that the burden of proof of a limitation defence lies on the party asserting that defence. In the present case, however, there is no dispute about when the loans were made. John pleads that the loans were repayable on demand or as otherwise agreed. There is neither a claim nor evidence that the parties otherwise agreed. I find that they were repayable on demand.
The position is different for the first four loans (up to June 2005) and the later loans.
Section 59 of the Limitation Act 2005 provides:
A cause of action for the repayment of a debt repayable on demand accrues when there is a failure to comply with a demand for repayment.
The 2005 Act only applies to causes of action which accrue after that Act came into operation on 15 November 2005. The cause of action on each of the first four loans accrued before the 2005 Act came into operation. The loans from 2006 come within s 59, so the cause of action accrued in each case on failure to comply with a demand. A letter of demand was sent on 12 February 2016, after the action commenced but before John filed a counterclaim.
John may still maintain his action on the first four loans if Timothy has acknowledged the debt: Limitation Act 1935 s 44, and see Giacci v Giacci Holdings Pty Ltd [2010] WASCA 233 [36] ‑ [39]. Acknowledgement must, however, be in writing signed by Timothy or his agent duly authorised. No acknowledgment in writing has been proved.
For the first four loans, John also pleads that they were a running account. In Meriton Apartments Pty Limited v The Owners Strata Plan No 72381 [2015] NSWSC 202, Slattery J said:
Apartments acknowledges there is no strict legal definition of the term 'running account'. But judges have ventured various practical definitions of the term. A 'running account' has been described as 'a current account where the debtor/creditor relationship of the parties is recorded in one entire account into which all liabilities and payments are carried in order of date as a course of dealing extending over a considerable period': Re Footman Bower & Co Ltd [1961] Ch 443 at 450, per Buckley J (as his Lordship then was). The Court of Appeal in New South Wales has described a 'running account' as 'where there is truly a running account, there is a single balance which is the product of mutual dealings in the past': Santos Coffee Co Pty Ltd v Director Freight Express Pty Ltd [2010] NSWCA 14 at [41]. Wiley v Eastern Elevators Pty Ltd (2003) 175 FLR 344; [2003] NSWSC 377, at [29] described a running account as arising in circumstances where 'the transactions between the parties … resulted in a fluctuating balance with the payments made from time to time against services provided and to be provided, that is, to the general balance of the account', a situation which is to be contrasted with an account in which 'each party was specifically related with a specific invoice representing a particular "progress payment" for past work' [205].
Whether a payment is part of a running account has been considered in the context of whether the payment has given a preference to one creditor over others. The essential feature of a running account has been said to be that it predicates a continuing relationship of debtor and creditor ‑ often in connection with an ongoing supply of goods or services ‑ with an expectation that further debits and credits will be recorded: Airservices Australia v Ferrier (1996) 185 CLR 483, 504 ‑ 505.
On the facts pleaded and the evidence given by John, I am not satisfied that there was a true running account. I am not satisfied for any of the loans that the parties assumed a continuing balance, rather than that each loan would be treated as a discrete transaction.
This finding has two consequences. First, the loans up to June 2005 were statute barred at the time the action commenced. Second, John pleads (par 27(b)) that Timothy instructed him to apply the $200,000 that Timothy paid on 10 May 2011 in reduction of the loans pleaded in par 26 of the counterclaim; that is, the loans up to and including the $200,000 advanced on 24 May 2006. In his witness statement, John says that Timothy 'repaid to me the $200,000 that I loaned to him for the purchase of the Nedlands land'.
In Santos Coffee Co Pty Ltd v Director Freight Express Pty Ltd [2010] NSWCA 14 [42], the Court said:
As to appropriation and statute barred debts, the rule is that where there is no true running account, if neither party makes an election it will be assumed that claims that have not become statute barred are paid before those that have become barred: Nash v Hodgson (1855) 6 De GM & G 474 at 482 ‑ 487; 43 ER 1318 at 1321 ‑ 1323; D Oughton et al Limitation of Actions (1998 LLP) at 158; A McGee Limitation Periods (5th ed 2006 Sweet & Maxwell) at 390; and P R Handford Limitation of Actions; the Laws of Australia (2nd ed 2007 Thomson Lawbook Co) at 279 ‑ 281 [5.10.2220]. If, on the other hand there is a true running account (absent intention) it is incorrect to apportion the payment among the various items making up the balance: Re Footman Bower & Co [1961] 1 Ch 443.
In the present case, the evidence is that there was an election as to the application of the $200,000 payment to the loans for the Nedlands land. Absent that election it would have been applied to the later, not statute barred, debts in any event.
For completeness, I am not satisfied that the payment in May 2011 is an acknowledgment by part payment of the earlier debts, because it was attributed to the advances made for the purchase of the Nedlands land.
In summary, the first four debts ‑ in total $33,000 ‑ are not now recoverable. Timothy is liable to repay ‑ after allowing for the payment in May 2011 ‑ $391,522.37.
The claim for interest
The plea relies on a 'verbal agreement' ‑ I assume oral ‑ that interest would be payable on the amount of money advanced by either John or Timothy 'at the cost of the money or the amount payable by the lender to their respective financial institutions': par 25(c). The material facts relating to the making of the agreements have not been pleaded, although no objection was made to the plea.
John testified that normally a loan would come about as a result of a request by either Timothy or John, and interest would be payable 'at the cost of [the lender's] financial institution's interest rate'.
John claims interest calculated at 6%, on the basis that the interest rate was never less than 6% per annum, compounding monthly. The only documentary evidence of the interest rate payable to Suncorp Bank is for the period April to July 2011 (when the rate was 7.73%). John's unchallenged evidence, however, is that it was not less than 6% throughout the period of the loans.
I am satisfied that each of the loans which I have found remain outstanding should be repaid with interest at the rate of 6% per annum from the date of the loan. On the loan of $200,000 made on 24 May 2006, John is entitled to interest at the rate of 6% from the date of the advance to when it was repaid on 10 May 2011.
Damages for trespass
Timothy admits receiving $45,250 in rent between 6 May 2012 and 21 March 2014.
I am satisfied that John was the registered proprietor throughout that period and there was no separate beneficial interest held by Timothy. John submits that Timothy was a tenant at will. That, in my opinion, is the highest interest he could have held.
A tenancy at will is not assignable, and is determined if the tenant parts with possession: see, generally, Butt P, Land Law (6th ed, 2009) [15.25]. The purported grant of a tenancy by Timothy in April 2012 determined his tenancy at will.
Before these proceedings commenced, John had both demanded delivery of vacant possession from the new tenants and entered into physical possession of the land, which was then vacant, including by changing the locks.
John claims the rent received by Timothy as well as the estimated cost of repairs and the legal costs incurred in evicting the subtenants. They are claimed as damages for acts inconsistent with John's rights to receive the rents payable under the tenancy agreements. They are not expressly claimed as damages for trespass against John's right to possession of the land.
I am satisfied, however, that on having regained physical possession, John is entitled to claim damages for trespass for the period from when Timothy breached the tenancy at will by purportedly leasing the land. The damages he suffered, in the absence of evidence of market rent, is the amount that Timothy admitted that he received, that is $45,250.
John is also entitled to the costs of regaining possession including the legal costs ($4,726.61) and the costs of the locksmith ($195.50).
John did not prove the costs of repairs.
Holding costs
The last claim brought by John is again based on an oral agreement. John pleads that he and Timothy orally agreed that Timothy would reimburse John for all statutory charges and holding costs. John gave evidence to support that plea. Although the evidence about the terms of the agreement is scant, it is an agreement to reimburse charges incurred and paid while waiting for Timothy to raise sufficient funds to purchase the Carlisle property. In those circumstances, I am satisfied that the right to reimbursement did not arise immediately, and the cause of action did not immediately accrue.
The evidence was that holding costs were incurred in rates to the Town of Victoria Park and in water rates.
The amount pleaded in the body of the counterclaim and the prayer for relief is not consistent - a greater amount being pleaded in par 47 of the counterclaim. The amount proved in evidence is slightly less than that pleaded, and is $25,171.82.
Conclusion
For these reasons, John is entitled to judgment for the outstanding loan amounts - a total of $391,522.37 and interest.
He is also entitled to damages arising from Timothy's breach of the tenancy, $50,172.11.
Finally, John is entitled to payment of the holding costs on the land, in the amount of $25,171.82, pursuant to his agreement with Timothy.
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