GHM Nominees Pty Ltd v Wallace Jackson Pty Ltd
[2021] VCC 733
•9 June 2021
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-20-02503
| GHM NOMINEES PTY LTD | Plaintiff |
| v | |
| WALLACE JACKSON PTY LTD | Defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3,4,5,6,7 and 11 May 2021 | |
DATE OF JUDGMENT: | 9 June 2021 | |
CASE MAY BE CITED AS: | GHM Nominees Pty Ltd v Wallace Jackson Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 733 | |
REASONS FOR JUDGMENT
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Subject:CONTRACT – LIMITATION OF ACTIONS
Catchwords: Loan agreement – whether loans were repayable on demand – whether claim is statute barred
Legislation Cited: Limitation of Actions Act1958 (Vic)
Cases Cited:Atkinson v Bradford Third Equitable Benefit Building Society (1890) 25 Q.B.D. 377; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Re Brookers (Australia) Ltd (in liq); Brooker v Pridham (1986) 41 SASR 380; Byrne v Australian Airlines Ltd (1995) 185 CLR 410; Michell v Onroad Offroad Pty Ltd [2018] VSC 648; Murphy v Lawrence [1960] NZLR 772; Ogilvie v Adams [1981] VR 1041; Surrendra Overseas Limited v Government of Sri Lanka [1997] 1 WLR 565; VL Finance Pty Ltd v Legudi [2003] VSC 57; Young v Queensland Trustees Ltd (1956) 99 CLR 560.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C R Northrop | Goldsmiths Lawyers |
| For the Defendant | Mr D P Lorbeer | King & Wood Mallesons |
HIS HONOUR:
Introduction
1In this case, the plaintiff (“GHM”) is suing the defendant (“Wallace Jackson”) for a debt of $802,769 which is said to be due and owing. While Wallace Jackson admits that GHM made the loans alleged, it denies that they are due for repayment. Further, Wallace Jackson says that even if the money is due, then by reason of the Limitation of Actions Act 1958 (Vic) (“the Limitations Act”), the debt is statute barred. GHM contends that, in this event, Wallace Jackson has acknowledged the debt and time has commenced running again. Thus, the claim is not statute barred.
Background
2GHM is the trustee of the Greg Herman Superannuation Fund. Greg Herman (“Herman”) established this fund to provide for his retirement. Herman worked as a real estate agent for over 40 years and is now retired. He was a director of RT Edgar in Toorak when he resigned from that business in 2012.
3Partly through social contacts and partly through a colleague at RT Edgar, David Colbran (“Colbran”), Herman came to know Gary Singer (“Singer”) and Geoffrey Smith (“Smith”). Over time, Herman became friendly with Singer and Smith and they socialised together.
4Wallace Jackson is the trustee of the Wallace Jackson Unit Trust (“the WJ Unit Trust”). The directors of Wallace Jackson are Messrs Herman, Smith and Singer. GHM holds half the issued units in the WJ Unit Trust. Smith Singer Pty Ltd, of which Smith and Singer are directors, holds the other half of the issued units in the trust.
5Singer and Smith are married. They were friends with Colbran as a result of their dealings in real estate over many years. Singer and Smith sought advice from Colbran about prospective properties. They were particularly interested in properties located either in the city or inner metropolitan Melbourne, especially properties which were on a separate title and might appeal to developers. Singer and Smith engaged in different approaches with their property investment. Sometimes they sought to land-bank suitable properties, holding them for the long term in the hope that they became attractive to developers who could construct larger buildings on the land and were willing to pay a premium for the property. On other occasions, they bought apartments in older buildings either to renovate and resell promptly, or with a view to owning all the units in the building.
6In 2010, Singer and Smith acquired the exclusive right to operate an art auction house in Victoria under the Sotheby’s name for a term of 10 years. Subsequently, they became interested in obtaining a licence to operate a real estate business under the Sotheby’s name. They raised this latter prospect with Colbran, inviting him to become involved as a partner in such a business. Colbran suggested that they bring in Herman as a fourth partner given his extensive experience.
7Singer and Smith went overseas in early 2012 to speak with the owners of the worldwide licensing rights to the Sotheby’s name in a real estate context, Realogy Group LLC (“Realogy”).
8In May 2012, Singer and Smith lodged an application to operate a real estate business under Sotheby’s name. Thereafter, negotiations between the parties proceeded slowly.
9In early August 2012, the commercial estate agents, Gross Waddell, notified Singer that the property at 14 Wallace Avenue, Toorak (“the property”) was being offered for sale. It sent him a brochure and information memorandum. The property was located at the corner of Wallace Avenue and Jackson Street, Toorak, enjoying two street frontages. The property had five lettable areas on the ground floor and a firm of accountants leased the whole of the first floor. The nett rental income was approximately $130,000 per annum. The property represented a special offering in the popular Toorak Village Shopping Centre area. Subject to planning approval, the property offered options for refurbishment and development.
10Singer and Smith spoke with Herman about the property and the three of them agreed to bid for it on a 50/50 basis – Herman on the one hand, and Singer and Smith jointly on the other hand, agreed to contribute half the funds needed to cover the shortfall on the purchase price. If successful, they agreed to cover equally the shortfall between the rental income generated from the tenants of the property and the costs and expenses of meeting both the interest payments due to the bank on the mortgage to be taken out over the property and the costs of holding and maintaining the property.
11At the auction on 6 September 2012, the parties succeeded in buying the property for $3.73 million. Between them, Herman, Singer and Smith paid the 10 per cent deposit of $373,000. Settlement of the purchase was extended for 6 months until March 2013.
12Wallace Jackson was incorporated on 14 February 2013. In order to settle the purchase of the property, Wallace Jackson borrowed $2.59 million from the National Australia Bank (“NAB”) which offered finance totalling 70 per cent of the value of the property. This was the maximum sum which could be borrowed on the property. Both Herman and Singer and Smith jointly contributed $540,000 in order to complete the sale on 6 March 2013.
13On about 19 April 2013, Melbourne SR Pty Ltd signed a master franchise agreement with Realogy. Three parties had an equal interest in Melbourne SR Pty Ltd: GHM, Smith Singer Pty Ltd and a company controlled by Colbran. The franchise agreement had an initial term of 25 years.
14The Sotheby’s real estate business commenced its operations initially at Herman’s home and then from a space on the ground floor of the property. Later, in around early 2015, the real estate business expanded to include the first floor of the property.
15The parties made various payments in the period 2013-2016 in order to meet the obligations of Wallace Jackson in relation to the property, including the mortgage and holding costs.
16In about 2017, the relationship between Messrs Herman, Colbran, Singer and Smith began to break down. In 2019, the Sotheby’s real estate business ceased operating from the property.
17By letter dated 19 February 2020, Herman demanded that Wallace Jackson repay him the outstanding loans he made totalling $802,769. Wallace Jackson denied that it was obliged to repay Herman as he requested.
18GHM filed the written statement of claim in June 2020. Wallace Jackson denied any liability to pay GHM. While Wallace Jackson admitted that it was indebted to GHM, it said that it was only liable to repay the loans when GHM sold its units in the WJ Unit Trust or Wallace Jackson sold the property, whichever occurred first. This ultimate formulation of the defence was found in the further amended defence which Wallace Jackson sought leave to file on 11 May 2021. This occurred when the parties returned to court to make final submissions, having completed the evidence the week before. In circumstances where GHM raised no objection to the amendment, I granted Wallace Jackson leave to file the amended pleading.
Issues
19The parties identified 12 loans which GHM made to Wallace Jackson in connection with the acquisition and management of the property. The table below sets out the various loans including the amount and the date it was made.
Description
Date
Amount
Loan 1
7-Sep-12
$186,400.00
Loan 2
6-Mar-13
$539,900.00
Loan 3
2-Oct-13
$7,500.00
Loan 4
28-May-14
$5,000.00
Loan 5
3-Jul-14
$5,000.00
Loan 6
4-Jul-14
$1,250.00
Loan 7
27-Oct-14
$5,000.00
Loan 8
28 Oct-14
$5,000.00
Loan 9
29-Oct-14
$5,000.00
Loan 10
29-Oct-14
$22,000.00
Loan 11
21-Feb-15
$17,900.93
Loan 12
26-Feb-16
$10,000.00
20Having reached a consensus on the loans advanced by GHM, the parties framed the critical issues which the court must decide as follows:
(a) Were the loans repayable:
(i)upon termination of the WJ Unit Trust or the sale of the property at 14 Wallace Avenue, Toorak, whichever occurs first;
(ii)upon notice being given by GHM to Wallace Jackson for repayment in February 2020;
(iii)when Sotheby’s Realty ceased using the property in late 2019;
(iv)immediately on the payment of each loan to Wallace Jackson.
(b) If the amounts lent were repayable immediately, did section 24(3) of the Limitations Act apply by reason of any of:
(i)the first acknowledgment as defined in paragraph 7 of the amended reply;
(ii)the second acknowledgment as defined in paragraph 8 of the amended reply;
(iii)the third acknowledgment as defined in paragraph 9 of the amended reply;
(iv)the fourth acknowledgment as defined in paragraph 11 of the amended reply;
(v)the payment as defined in paragraph 13 of the amended reply; and
(vi)the fifth acknowledgment as defined in paragraph 13A of the amended reply.
21It was common ground that the Court had to consider issue (b) only if it found that the loans were repayable immediately in the sense used by Fullagar J in Ogilvie v Adams.[1] If that were so, then time would commence running from the date the advance was made and, subject to exceptions created by the Limitations Act, any claim to recover a loan would be statute barred after six years.
[1][1981] VR 1041.
Summary of parties’ positions
22In general terms, the parties’ positions can be summarised as follows.
23GHM claimed that it was term of the agreement pursuant to which it made the loans to Wallace Jackson that Wallace Jackson would repay GHM when GHM gave notice to Wallace Jackson that it required the repayment of the loans, or alternatively, when Sotheby’s real estate business ceased using the property
24Wallace Jackson claimed that it was a term of its agreement with GHM that Wallace Jackson would repay the loans when the WJ Unit Trust terminated or Wallace Jackson sold the property or GHM sold its units in the WJ Unit Trust.
25Wallace Jackson made significant mention of this last alternative in final address notwithstanding that it did not refer to this point in its further amended defence dated 10 May 2021 or its opening submissions. Indeed, Wallace Jackson submitted that there was no possibility of Herman (through GHM) being locked into the unitholding in the WJ Unit Trust against his will. The defendant argued that not only was he not locked in until 2093 when the trust vested, nor was he to remain there at the whim of the defendant. Wallace Jackson contended that GHM had the power to dispose of its units in the WJ Unit Trust and thereby trigger the obligation of Wallace Jackson to repay the loans made by GHM. In fact, according to the defendant, Herman, as the person in effective control of GHM, could regulate the position even though he was only one of three directors of Wallace Jackson. Wallace Jackson argued that –
“He [Herman] is not locked in, his loan is not repayable upon the election of the defendant; it’s repayable upon a series of events which he can control.”[2]
[2] See Transcript, 471.
26Wallace Jackson contended that GHM could decide to exercise its rights as a unit holder in the WJ Unit Trust to effect the repayment of the loan monies which it advanced. In considering this matter, I propose to examine whether Wallace Jackson can rely upon this argument and if so, what the outcome might be.
27In my view, Wallace Jackson should not be allowed to advance this argument based upon GHM’s ability to sell its units in the WJ Unit Trust. As noted above, Wallace Jackson made no reference in its opening or further amended defence to the terms of the trust deed and the ability of GHM to control its own fate in relation to the recovery of the loan monies which it advanced to Wallace Jackson. These were potentially significant allegations and, if Wallace Jackson truly sought to ventilate these matters, it should have raised them in the traditional manner by giving proper notice. The fact that there was no mention of the point in the defendant’s pleadings, opening or the list of issues confirms that the argument likely represented an afterthought by Wallace Jackson.
28Even if I am wrong in this assessment of Wallace Jackson’s entitlement to raise the argument, I am not satisfied that it makes any significant difference to Wallace Jackson’s case. Under Clause 16 of the WJ Unit Trust, the unit holder can ask the trustee to register a transfer of all or any units which it holds (Clause 16.1). Unless required by Clause 16.4 which deals with transfers to particular permitted transferees, or Clause 17, which concerns the transmission of units upon the death or bankruptcy of a unitholder, the trustee retains an absolute discretion to refuse to register a transfer and to do so without giving any reason (Clause 16.1).
29When a unitholder wants to sell, it notifies the trustee and specifies the price per unit it fixes as the fair value. The notice to the trustee constitutes the trustee as the agent of the transferor for the sale of the units at a price equal to the fair value specified by the transferor, or as fixed by an expert, as permitted by the terms of the WJ Unit Trust. The trustee is to offer the units first to the other unitholders in proportion to their existing holdings. The existing unitholders can accept or reject the offer. If units are not accepted for sale, the trustee can offer them to any unit holder, or any other person whom the trustee selects as desirable in the interests of the trust to admit as a unitholder where that person is willing to buy the units.
30Within 30 days of being served with the transfer notice, the trustee is to nominate in writing to the transferor one or more unitholders or other persons whom the trustee considers desirable to become unitholders in the trust and who wish to purchase all or any of the transferor’s units. In the same written notice the trustee, if so requested by the purchaser, is to require the fair value of the units to be fixed by the nominee of the President for the time being of the Institute of Chartered Accountants in Victoria in lieu of the value fixed in the transferor’s transfer notice. If the fair value fixed by the nominee exceeds that specified in the transfer notice, the trustee is to inform the purchaser who can then elect within 14 days not to continue with the purchase. If, 30 days after the transfer notice, the trustee has not found a unitholder or selected a person to become a unitholder who is willing to purchase the units, or a purchaser elects not to continue with the purchase, the transferor shall be entitled within one month after the expiration of the 30 day period, to sell and transfer the units to any person at a price not less than the price fixed in the transfer notice (Clause 16.6(k)).
31While GHM and Smith Singer Pty Ltd each have a 50% shareholding in Wallace Jackson and 100 units each in the WJ Unit Trust, Singer and Smith are each directors of Wallace Jackson with Herman. To that extent, Herman is underrepresented at board level because he has, through GHM, an equal shareholding but only half the board seats of the other shareholder. For practical purposes, Singer and Smith, especially as they are married, are likely to vote together and control the trustee. The trustee generally can be expected to act in accordance with whatever Singer and Smith decide.
32As a result, this means that any transferee of units from GHM would be buying a share of a trust over which it had no control and only a limited role in its decision making and conduct. This could adversely affect the market for potential buyers. Moreover, even if GHM were to find a purchaser and agreed to terms, the trustee has the power to refuse to register the transfer. This means that GHM cannot fully control the circumstances under which it can sell its units in the WJ Unit Trust and recover the loan advances made.
33In this context, I observe that the defendant did not fully or accurately explain the operation or effect of Clause 16 of the WJ Unit Trust at the trial. The court does not appreciate receiving submissions which are misleading and/or lack a proper basis in fact or law.
Legal principles
34The issues in this case raise questions about the identification of terms in contracts which are not reduced to writing and when a creditor can demand payment from a debtor.
35Contracts can be written, oral or inferred from conduct or made partly in writing, orally or through conduct. Where contracts are at least partly written or oral, there should be evidence of the express terms to which the parties agreed. Where the contract arises from conduct, the terms are inferred from the nature and circumstances of the particular transaction.
36The terms of a contract are those which the parties intended to include in the contract. The parties’ intention is derived not from their subjective hopes, desires or motivations but from what a reasonable person would objectively infer from the words and conduct of the parties in connection with the particular agreement. Commonly, the main terms of an agreement will be obvious from what the parties say to each other. However, the law accepts that parties sometimes intend to include other terms which they have not specifically articulated. Thus, the courts can infer the requisite intention from the nature and context of the particular transaction.
37A court can imply a term into a contract. The well-established test for the implication of a term set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[3] applies only where a contract is made wholly in writing. Where the contract is not wholly in writing, the court implies the term if it is “necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case.”[4]As observed by Brennan CJ, Dawson and Toohey JJ in Byrne v Australian Airlines Ltd,[5] where there is no formal written contract, the court has first to infer the actual terms of the agreement before any question of implication can arise.
[3](1977) 180 CLR 266, 283.
[4]N C Seddon & R A Bigwood, Law of Contract, (Cheshire & Fifoot ,11th ed, 2017), 512.
[5](1995) 185 CLR 410, 422.
38Neither party contended that the loans in this case were repayable immediately upon the making of each loan to Wallace Jackson. In Ogilvie v Adams,[6] Fullagar J said that where A lends money to B with no specific term regarding repayment, the money is repayable immediately.[7] It is the same when the borrower contracts to repay the loan upon demand.[8] In order to avoid a scenario in which the creditor’s cause of action arises instantaneously upon the making of the loan, the parties need to contract out of that situation by words which are clearly inconsistent with such an outcome.[9] Thus, if an agreement is that a loan is repayable only upon the happening of a certain event, or upon compliance with a condition precedent, the debt is not immediately due and payable and the cause of action does not accrue until the occurrence of the event or compliance with the condition.[10] Further, an agreement might provide that the making of a demand is a condition precedent to the existence of a liability to repay. In that event, the cause of action cannot arise until a creditor has made demand.[11] As noted by King CJ, with whom Mohr J agreed, in Re Brookers (Australia) Ltd (in liq); Brooker v Pridham,[12] an agreement that liability to repay a debt does not arise until an actual demand is made may be express or implied, or may be inferred from the circumstances and the conduct of the parties.
[6][1981] VR 1041.
[7]Ibid, 1043.
[8]Ibid.
[9]Ibid.
[10]See Atkinson v Bradford Third Equitable Benefit Building Society (1890) 25 Q.B.D. 377.
[11]See Murphy v Lawrence [1960] NZLR 772.
[12] (1986) 41 SASR 380, 382.
39In the present case, it was common ground that:
(a) neither party contended that the loans made to Wallace Jackson were immediately repayable; and
(b) there was no explicit discussion about the term of the advances and the time at which they were to be repaid.
40There are several points to be made about the nature and circumstances of the interaction between GHM and Wallace Jackson regarding the property.
41First, Herman, Singer and Smith were all interested in real estate. Herman spent his working life as an estate agent. Singer and Smith had extensive knowledge of, and background in, real estate as investors.
42Secondly, Herman, Singer and Smith were close friends. Singer said he had known Herman since the early 1980s before Herman went to America and reconnected with him about 20 years ago. They socialised together. Colbran was also a member of this friendship group.
43Thirdly, Herman, Singer and Smith agreed to borrow the maximum amount available to purchase the property and to maintain it as an investment. This involved making contributions to the purchase price and funding the shortfall between the rental income received and expenditure incurred regarding the property – the investment was negatively geared. The parties made funds available in connection with the purchase through their respective self-managed superannuation funds. Phillip Dunn, the then accountant for Singer and Smith, conceived the structure of the investment and arranged for the production of the necessary legal documents by a solicitor, Michael Sharp.
44Fourthly, in order to obtain a positive return on the purchase of the property, Wallace Jackson had to hold the property for some time. The parties’ loans attracted no interest. The cashflow on the property was negative because expenditure exceeded income and hence, the parties were committed to making good the shortfall. Thus, the parties had two means of profiting from the investment: wait for the rental income to increase over time to the point where it exceeded the outgoings and produced a positive cash flow; and/or hold the property long enough for it to increase in value and thus obtain a capital gain.
45Fifthly, Singer and Smith were keen to obtain the right to conduct a Sotheby’s real estate business. If they obtained the licence, Herman was interested to be a shareholder in such business. The three men agreed, together with Colbran, that if this happened, the Sotheby’s business could operate from the property as it was an excellent location for such a business.
46Sixthly, at the time of the auction and even at the time of settlement 6 months later, Singer and Smith had still not obtained the necessary franchise from Realogy to operate a real estate business in Victoria under the name of Sotheby’s. The parties committed themselves to the purchase of the property before they knew the outcome of the application to Realogy.
47Finally, when the WJ Unit Trust was created its only asset was the property. This remained the position throughout its existence.
48In my opinion, it follows from these features that the parties intended to enter into a commercial transaction in which they purchased the property to hold it as a long-term investment as opposed to a quick renovation and resale. Unless they did this, they were most likely to lose money because the investment was negatively geared and Wallace Jackson required ongoing financial support to meet its obligations. The Sotheby’s real estate business could operate from the property if they secured the rights from Realogy.
49The question of the repayment date for the loans must be considered in this context.
Were the loans repayable immediately upon payment of each loan to Wallace Jackson?
50The first two loans which GHM made for the deposit and settlement of the contract to buy the property amounted to about $726,300. It is clear that the purpose of the loans was to buy the property. These loans occurred in the context of the parties agreeing to be equal participants in the venture. Each of Herman, on the one hand, and Singer and Smith jointly on the other, would contribute half the monies needed both to buy the property (after making due allowance for the bank loan) and to fund the shortfall in relation to the ongoing costs and expenses of holding the property.
51Herman’s recollection of events was not as authoritative or clear as Singer’s or Smith’s. Herman could not recall having a conversation with Smith in the ten days before the auction in which Herman said that he would sell his strata title retail shop in Toorak Road because the property represented a far superior long-term hold. Herman acknowledged that he might have said something to this effect, but he could not recall the specific conversation. Nor could Herman remember a conversation with Smith around the same time where Smith said to him that the property was a good long-term investment as a major development site. Again, Herman accepted that such a conversation could have occurred, but he just could not remember it.
52Having regard to the various factors discussed above[13] I consider that that the parties did not objectively intend that the monies lent by their self-managed superannuation funds should be repayable immediately on demand. It is commercially unrealistic to think that, in the circumstances of this transaction, Wallace Jackson was in any position to repay any loans advanced on this basis. Wallace Jackson had borrowed the maximum permissible amount from the NAB and relied upon loans from Herman, Singer and Smith to make up the balance of the purchase price required for settlement. My assessment of the situation is reinforced by the fact that neither party advanced a case that the loans were repayable immediately.
[13] See paragraphs 40-48.
53If time ran immediately from when each loan was advanced and the lender could demand instant repayment, the consequences for the borrower would be grave. Unless there was another lender willing to make funds available, Wallace Jackson as the borrower would almost certainly have to sell the property to repay the loan.
54In this context, I note that recently Singer and Smith sought to raise more finance for Wallace Jackson to cover additional expenditure incurred by the trustee. This included the costs of the present litigation. Smith and Singer apparently presented Herman with two options: the three of them could contribute equally, or if Herman refused, Singer and Smith would lend more money to Wallace Jackson but at an interest rate of 19.5% per annum compounding monthly. Herman refused to make additional loans and Singer and Smith have provided loan funds at the interest rate specified. Singer and Smith contend that the rate is not excessive because the loan is unsecured and a long-term loan. They argued that the rate was broadly equivalent to that which a second-tier lender would charge. Currently, mainstream banks are prepared to make secured loans at interest rates slightly above 2% per annum.
55There was no specific evidence given about the availability of finance from other lenders or the interest rates they offered. However, the substantial differential between:
(a)interest rates of 2-3% and 19.5%; and
(b)interest accumulating annually and compounding monthly
prima facie appears excessive.
56I note that the parties sought to use the classification of the loans in the accounts of Wallace Jackson and GHM in support of their contentions. One side argued that classifying loans as current meant that they were repayable within 12 months and, therefore, repayable on demand. The other pointed to the classification as non-current liabilities to contend the opposite. I found these submissions unhelpful. In my view, none of the principal actors explicitly communicated to the other actors any thoughts about this aspect of the loan classification in terms of the precise time for repayment. Given the lack of specific attention accorded to the issue, I am more comfortable addressing the problem from the objectively identifiable nature and context of the transaction.
57In the circumstances, I find that the loans from GHM were not repayable immediately upon being advanced to Wallace Jackson.
Were the loans repayable upon notice being given by GHM to Wallace Jackson for repayment in February 2020?
58Applying the same reasoning used with loans repayable immediately, I do not consider that the loans were repayable upon giving formal notice as occurred in February 2020. In principle, this is no different from being repayable on demand to the extent that the obligation to repay crystalises once the demand is made. As indicated, in my opinion, the context is such that the parties did not intend that the loans were repayable upon demand. A critical factor is that, theoretically, the demand could be made at any time, including soon after advancing the loan. Plainly, making a demand for payment to a borrower with a single asset and no financial capacity to service its bank loan and other financial obligations without loans from Messrs Herman, Singer and Smith would cause major problems for the borrower. Moreover, to infer that the loans were simply repayable on demand ignores the special connection between the loans and the property.
59GHM contended for a scenario in which it could request repayment of the loans upon giving notice as it did in February 2020. GHM’s primary case was that, due to the circumstances in which GHM and Smith Singer Pty Ltd lent monies to Wallace Jackson to purchase the property, the court should imply an intention that the loans would not be repayable until the lender gave a notice for repayment. In effect, a notice to repay was a condition precedent to the lender recovering its loans. No cause of action could accrue, or time run against a lender, until it gave the requisite notice.
60Between GHM’s first loan of $186,400 and it’s second loan of $539,000 various developments occurred, including the incorporation of Wallace Jackson, the adoption by Wallace Jackson of a corporate constitution, the creation of, and issuing of units in, the WJ Unit Trust, Wallace Jackson entering a loan agreement with the NAB for $2.59 million and Herman, Singer and Smith giving personal guarantees to the NAB for such loan.
61These developments arose through the work of Phillip Dunn and Michael Sharp. The evidence indicated that Herman, Singer and Smith simply signed the various papers and documents put before them. The arrangements were designed to be tax effective and no party raised any queries about the form of the legal arrangements made. Dunn said that the major benefit was that the capital gain, which was anticipated to arise from the investment in the property, would be taxed at the lowest possible rate because the parties had used their respective self-managed superannuation funds to make the investment.
62Herman did not dispute that, in relation to the discussions between himself, Singer and Smith:
·they talked about the shortfall between the income generated by the property and the expenditure it incurred; and
·Singer produced revised calculations after the auction about the shortfall.[14] The revised figures reflected the acquisition cost of the property being higher than originally anticipated. These calculations showed that Herman, Singer and Smith (or their companies) were assuming a greater funding burden in order to keep Wallace Jackson capable of meeting its obligations.
[14]Singer had produced figures before the auction regarding the likely shortfall and the potential cost of finance.
63Having regard to the circumstances and the various factors mentioned, I find that the loans were not repayable upon notice.
Were the loans repayable when Sotheby’s Realty ceased using the property in late 2019?
64The significance of the cessation of Sotheby’s Realty using the property stems largely from the position adopted by Herman. In effect, he said that he would not have been interested in buying the property unless the Sotheby’s real estate business was located there. Indeed, Herman suggested that the only reason for buying the property was to accommodate the Sotheby’s real estate business.
65I am troubled by this aspect of Herman’s evidence and, for several reasons, do not accept it.
66First, as already pointed out, there is a major problem with the chronology. Herman, Singer and Smith bought and settled on the property before they knew the outcome of the franchise application to Realogy. The negotiations with Realogy were slow. Colbran thought the proposed venture was “going nowhere” and withdrew from the venture. Although Realogy later reversed its decision, it initially objected to Herman being a shareholder in the Victorian business and required that he be removed. Singer said he told Herman about this difficulty. Herman did not dispute that Singer made him aware of the problem around September 2012. Notwithstanding his exclusions as a part owner of the business, Herman did not seek to avoid the contract to purchase the property or to transfer his interest in the property to another person.
67Secondly, apart from the problem of timing, Herman acknowledged that, at the time of the auction, he did not know if the real estate business would eventuate, who would be involved in the business, who would have an ownership interest in the business, how many people would be employed in the business or how much space the business would require. In other words, there were significant uncertainties regarding the future of any real estate business. That being so, it was difficult to accept that the property was bought for the asserted purpose.
68Thirdly, there was no need to buy a property in order to accommodate the Sotheby’s real estate business if they obtained the franchise. It was sufficient to lease space from which to run this business. It would seem odd commercially to commit to buying a building for $3.73 million with the attendant cost, and potential liability in providing personal guarantees to the bank, when it was not known if the business would even exist.
69Fourthly, immediately before acquiring the property Herman had a retail commercial property in Toorak Road which he said yielded a good return. Again, it made no commercial sense for Herman to sell this asset for an interest in a negatively geared property which would require additional cash injections to meet its financial obligations. Such conduct was more readily explicable if Herman hoped to make a substantial capital gain on the property from a longer-term investment.
70Fifthly, certain aspects of Herman’s behaviour were inconsistent with the notion that the only reason for buying the property was to house the Sotheby’s real estate business. For example:
(a)the Sotheby’s real estate business sold in September 2019 to Robert Curtain and his company, Curtain Razor Pty Ltd. Notwithstanding the sale of the business, on about 1 October 2019, the defendant entered a three-year loan facility with Westpac for $2.6 million. Herman joined with the other directors of Wallace Jackson in giving a personal guarantee in relation to the bank loan. Given Herman’s stated reasons for buying the property, why would he agree to the loan and guarantee when the business was sold and no longer needed the property? Herman offered no persuasive explanation for his behaviour.
(b)In the letter of demand which the plaintiff’s solicitors sent in 2020, they made no demand for the sale of the property even though the business had been sold and Herman’s rationale for the purchase of the property no longer existed. A similar point can be made about Herman’s email to Singer and Smith in January 2020 regarding land tax.
(c)There was evidence from Phillip Dunn that, when he was meeting banks to obtain finance for the purchase of the property, Herman came with him to see Simon Dalton at the NAB. During the meeting, Herman presented conceptual sketches to show what might happen with the site when it was developed. According to Dunn, Herman said that it was the best site in Toorak and they would develop it in the future. Such behaviour by Herman was consistent with his conduct in examining development possibilities (including plans) on the property in the period soon after the purchase settled. One might wonder why Herman would be interested in such plans, especially one which made no provision to accommodate a Sotheby’s real estate business. Herman said that he was motivated by curiosity. I did not find Herman persuasive or credible on this point.
71Finally, at trial, it appeared that Herman raised the question of selling the property only twice during the lengthy process of selling the Sotheby’s franchise. It was put to Herman that, when Singer said the acquisition of the property and the conduct of the Sotheby’s real estate business were separate matters and not tied together, he did not dispute Singer’s comment. Herman agreed that they were separate and could not recall taking issue with Singer.
Were the loans repayable when Sotheby’s ceased using the property?
72GHM argued that the evidence supported the proposition that the loans would be repaid if the Sotheby’s real estate business ceased to use the property.[15] It said that this use of the property was the primary reasons which Herman, Singer and Smith shared for acquiring the property. Herman contended that, even if Singer and Smith were motivated by additional factors, this point remained valid. But for the Sotheby’s business, the three of them would not have been involved in the purchase of the property.[16]
[15] Plaintiff’s Closing Submissions, at [15].
[16] Ibid.
73Wallace Jackson had a different view of the matter. For example, Singer said that Herman told him he was buying the property for an investment like Singer and Smith. According to Singer, Herman never said that he was only buying the property because of the Sotheby’s real estate business. At the same time, Singer acknowledged that, if Realogy granted them the Victorian licence to use Sotheby’s name in a real estate business, then that business could occupy part of the property and expand within the building.
74Smith said that he spoke to Herman at his house about the property. This took place sometime before the auction. Smith gave evidence that he told Herman he regarded the property as a “long term hold” or investment which you just buy and put away. Smith said that they did not discuss any particular period for holding the property. Because Smith knew that the three of them had used their superannuation funds to make the purchase, he believed that entailed holding the property for many years because superannuation money could only be accessed when you reached a certain age and retired. Smith said that Herman told him he thought the property was a much better long term investment than the retail property he had bought in Toorak Road.
75I have set out earlier in the judgment why I do not accept Herman’s evidence that the only reason Herman, Singer and Smith bought the property was to house the Sotheby’s real estate business. Largely because of my view on that issue, I do not consider that the loans were repayable upon Sotheby’s real estate ceasing to use the property for its business in Victoria.
76I prefer the evidence of Singer and Smith about the connection between the Sotheby’s real estate business and the property. These men were enamoured of the property. Both regarded it as a special property in the Toorak Village precinct. Smith in particular was taken with the building from an artistic or architectural perspective. He saw it as a beautiful, elegant older style building on a lovely corner position. Smith wanted to preserve the building and improve both it and the quality of the tenants at the property so that they could contribute value to the area. Smith regarded himself and the other purchasers as custodians of the property.
77I am satisfied on the evidence that Herman, Singer and Smith bought the property because of its inherent qualities and future prospects. It was not a speculative purchase undertaken solely for the purpose of having an office building from which the Sotheby’s real estate business could operate. At the time of the purchase it was unknown whether Realogy would grant the necessary licence.
78While there seemed to be some difference between Singer and Smith about whether they had the necessary financial resources to buy the property without another partner, I accept that they bought the property as a long term investment irrespective of the possibility of it housing the Sotheby’s real estate business. That possibility was not decisive in causing them to buy the property. While Herman may have been hopeful of obtaining a franchise from Realogy and using the property as head office for the real estate business, I find that he was interested to invest in the property regardless of this potential use because it represented an excellent long term investment.
79In short, I consider that there was no term to the effect that the loans be repaid when Sotheby’s ceased using the property.
Were the loans repayable upon the first to occur of the termination of the WJ Unit Trust or the sale of the Property?
80My view is that the developments which took place between the making of GHM’s first and second loans further support the proposition that the loan funds were not repayable on demand or upon notice. Implicitly, if not explicitly, the parties agreed to a situation in which Wallace Jackson and the WJ Unit Trust was created to provide a legal framework for their relationship regarding their investment in the property. By incorporating Wallace Jackson with its constitution and creating the WJ Unit Trust, the parties established a governance structure which set out, inter alia, the powers exercisable by the trustee and the circumstances in which the trustee was authorised to act.
81The constitution of Wallace Jackson provides that the business of the company is to be managed by or, under the direction of, the board.[17] Clause 86 of the constitution states that a board resolution must be passed by a majority of votes cast by the directors entitled to vote on the resolution. The chairman has a casting vote in addition to any voting entitlement held in the capacity of a director of Wallace Jackson.
[17] Clause 82, Court book, 205.
82Clause 4.2 of the deed establishing the WJ Unit Trust is in the following terms:
“No Unit Holder shall except as provided in sub-clause 4.3 hereof or otherwise as expressly provided in this Deed be entitled to require the transfer to him of any of the investments of the Fund or be entitled to interfere with or question the exercise or non-exercise by the Trustee of the rights and powers of the Trustee as owner of such investments”
By this term, the two unit holders in the WJ Unit Trust agreed that Wallace Jackson, as trustee, has a discretion regarding the exercise of its rights and powers in relation to the investments held by the trust. The trustee’s powers granted by Clause 22 of the trust deed are extensive, comprising over forty specific powers. These are additional to any other powers conferred by law on the trustee. Subject to limited and presently irrelevant exceptions, no unit holder can interfere with, or question, the trustee’s conduct in this context. This means that the directors of Wallace Jackson make all decisions about the operation of the WJ Unit Trust and its investments.
83Herman made the point that it was ridiculous to think that a sale of the property might not occur until the unit trust vested in 2093. Likewise, he commented that it made little sense to hold the property for decades as Smith suggested was possible. Where Herman, Singer and Smith used superannuation funds to acquire and then hold the property, Herman said there was little utility in obtaining repayment of the loans after the need for support in retirement had passed.[18]
[18] Plaintiff’s Closing Submissions, at [14].
84I regard each of these observations by Herman as having some merit. However, to a degree, they reflect a reasonably extreme view of the matter. Unless there are miraculous advances in science, all three men will be dead by 2093. In practical terms, it seems to me virtually inconceivable that Wallace Jackson would not sell the property before then.
85Similarly, while Wallace Jackson may well hold the property for some further time, given that Herman is 62 this year, Singer is 65 and Smith is the youngest at 52, I do not imagine Wallace Jackson would hold the property for say another 30 years. I would expect the men to be aware of, or advised about, the sole purpose test in the Commonwealth superannuation legislation. This requires the trustee of a superannuation fund to maintain the fund for certain statutory purposes- essentially, to provide financial support in retirement or death benefits if the member of the superannuation fund fails to reach retirement age. To that extent, Herman, Singer and Smith would need to take into account that Herman is retired and Singer is fast approaching the age at which he could access retirement benefits.
86I have referred earlier to matters which point towards this purchase being a long term investment which would make money for the investors only if it were held for some time. Also, there were reasons why I considered that the loans made by the three individuals primarily involved could not be repayable on demand. Of the alternate terms stipulated by the parties for the court to choose between, I regard this as the best option to be inferred in the parties’ agreement. In my opinion, this term sits most comfortably with the nature and context of the transaction.
Limitation of Actions Act 1958 (Vic)
87On the basis that I am wrong to find the loans to Wallace Jackson were not repayable immediately, then I will briefly examine whether GHM’s right to recover the loans it made to the WJ Unit Trust are statute barred under the Limitations Act.[19]
[19] Limitation of Actions Act 1958 (Vic), Section 5.
88Dixon CJ, McTiernan and Taylor JJ in Young v Queensland Trustees Ltd[20], stated that ‘[a] loan for money payable on request creates an immediate debt’.[21]
[20] (1956) 99 CLR 560.
[21] Ibid, 566.
89In Ogilvie v Adams[22], Fullagar J described the liabilities of a creditor for a loan without terms for repayment as follows:
“The common law has always regarded the fact of indebtedness as a continuing detention by the debtor of the creditor’s money, and this is whether the creditor brought an action of debt or an action in indebitatis assumpsit. Therefore, if A lends money to B, then instantly B is detaining A’s money. In order to prevent a cause of action for recovery arising in A instantaneously on paying the money, the parties must expressly contract out of that situation by words clearly inconsistent with that situation. The courts have long since settled it 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 that 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 receipt of the money by the borrower, so that the lender’s cause of action becomes statute barred at the expiry of six years after receipt of the money.”[23]
[22] [1981] VR 1041.
[23] Ibid, 1043.
90This passage was approved by Nettle J in VL Finance Pty Ltd v Legudi.[24]
[24] [2003] VSC 57, [39].
91If the default position identified in Ogilvie v Adams applies in this case and GHM’s cause of action accrued on the dates it made its 12 loans (between 7 September 2012 and 26 February 2016), under section 5 of the Limitations Act, GHM’s cause of action in relation to loans one to four has been barred. Loans one to four were repayable more than six years prior to the commencement of this proceeding on 5 June 2020.
92The first four loans will therefore be statute barred unless, as contended by GHM, section 24(3) of the Limitations Act is enlivened, which relevantly provides as follows:
24 Fresh accrual of action on acknowledgment or part payment
(3) Where—
(a) any right of action has accrued to recover any debt or other liquidated pecuniary claim or any claim to the personal estate of a deceased person or to any share or interest therein; and
(b) the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof—
the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment:
Provided that a payment of a part of the rent or interest due at any time shall not extend the period for claiming the remainder then due, but any payment of interest shall be treated as a payment in respect of the principal debt.
93GHM contended that there were a series of acknowledgments of the debt by Wallace Jackson which were sufficient for the limitation period to commence again[25] as contemplated by section 24(3)(a) of the Limitations Act.
[25] Plaintiff’s Amended Reply, [7] - [13A].
94The acknowledgments which GHM referred to were as follows:
(a) the letter dated 17 March 2021 signed by two of the three directors of Wallace Jackson (the fifth acknowledgment) which incorporates the 2016 financial statements that were adopted by Mr Singer on 17 June 2017 (the first acknowledgment);
(b) the 31 December 2019 balance sheet sent by the Wallace Jackson’s solicitor King & Wood Mallesons to GHM’s solicitor in March 2021 (the third acknowledgment); and
(c) the financial accounts for 2018 signed by Singer and Smith (the second acknowledgment) and the 2019 accounts also signed by Smith and Singer (the fourth acknowledgment).
95In addition, GHM contended that the payment made by Wallace Jackson to it of $471 in the 2016 financial year was a part payment for the debt due.
96GHM submitted that these acknowledgments and/or the payment made by Wallace Jackson to GHM in 2016, engaged section 24 of the Limitations Act as the acknowledgments and payment were made within six years of this proceeding being commenced in 2020.
97Wallace Jackson submitted that none of the documents relied upon by GHM constituted an acknowledgment and that the payment of $471 cannot be characterised as an admission by Wallace Jackson that the alleged debt was due at that time. For this reason, Wallace Jackson submitted that the plaintiff’s right of action has expired.
98If section 24 of the Limitations Act is enlivened, GHM’s cause of action will be said to have been revived and the running of time will start afresh from the time that the acknowledgment or part payment occurred.
99I will therefore consider whether there has been an acknowledgment by the Wallace Jackson and/or whether the payment made by Wallace Jackson in 2016 was a part payment for the debt.
Was there an acknowledgment by Wallace Jackson of the debt?
100I will first consider whether there has been an acknowledgement of debt sufficient for the limitation period to commence again.
Legal Principles
101Section 25 of the Limitations Act sets out formal requirements for an acknowledgment.
Formal Provisions as to acknowledgments and part payments
(1) Every such acknowledgment as aforesaid shall be in writing and signed by the person making the acknowledgment.
(2) Any such acknowledgement or part payment as aforesaid may be made by the agent of the person by whom it is required.
102In VL Finance, Justice Nettle set out the following principles in relation to acknowledgements:
“The question of what amounts to an acknowledgment is a question of construction, and there is high authority that the decided cases are of little value as precedents. It is plain, however, that an acknowledgment needs to be in writing, and it needs to be signed by the debtor or his agent and it needs to be “given to the creditor”. On the other hand, it need not specify the amount of the debt precisely, provided it is ascertainable from extrinsic evidence and, as with the State of Frauds, it is permissible to combine a number of instruments in order to make up the one acknowledgment.”[26]
[26] [2003] VSC 57, [60].
103Further, Kerr J in Surrendra Overseas Limited v Government of Sri Lanka[27], said that a statement must acknowledge the maker’s indebtedness and legal liability to pay the claim in question. Consequently, a debtor can only be held to have acknowledged the claim if he has, in effect, admitted his legal liability to pay that which the creditor seeks to recover.[28]
[27] [1997] 1 WLR 565.
[28] Ibid, 572.
104What amounts to an acknowledgment is ultimately a question of construction, looking at the context in which the acknowledgment arises.[29]
[29] G E Dal Pont, Law of Limitation (LexisNexis Butterworths, 2016), 348 [17.29].
105In this case, where the claim is for payment of a debt, an acknowledgement must recognise and/or admit the existence of the debt.[30]
[30] Ibid, 346 [17.25].
Analysis
106The first and second alleged acknowledgements were documents in writing and signed by Singer, a director of GHM, who in this case is a director of the debtor, Wallace Jackson.
107Wallace Jackson contended that these acknowledgments were given to GHM under cover of a letter written by King & Wood Mallesons. The letter stated that Wallace Jackson did not consider the sum of $181,796 to be due and payable.
108It is clear, looking at the context in which the alleged acknowledgments were provided to GHM, that Wallace Jackson did not admit or acknowledge that the alleged debt was due and payable. The letter that accompanied the alleged acknowledgements challenges the current enforceability of the debt. In this context, the alleged acknowledgements cannot be considered sufficient to give rise to an acknowledgment under the Limitations Act that the debts were due and payable.
109The third alleged acknowledgment was in writing but not signed. However, it was also provided to GHM under the letter referred to above, which was signed by the defendant’s solicitor. I am satisfied that King & Wood Mallesons was an agent authorised on behalf of the defendant to make an acknowledgment. However, for the reasons set out in relation to the alleged first and second acknowledgments, the debt was not acknowledged as due and payable by Wallace Jackson.
110The fourth alleged acknowledgment was in writing and signed by both Singer and Smith. The document referred to the loans made by GHM as non-current liabilities. As I outlined in paragraph 56 the parties had different contentions as to how the loans should be classified.
111The recording of the loans as non-current liabilities was consistent with Wallace Jackson’s contention that the loans would not become due and payable within 12 months and that it did not recognise the present existence of the debt. However, it was inconsistent with GHM’s contention. GHM argued that the recording of the loans as non-current liabilities was inaccurate and that the loans should, as they were previously characterised, be considered current liabilities.
112For the reasons outlined in paragraphs 56 and 57 and having regard to the various factors discussed in paragraphs 40 to 48 I consider that that the parties did not objectively intend that the monies lent by their self-managed superannuation funds should be considered to be current liabilities. As outlined above, it is commercially unrealistic to think that, in the circumstances of this transaction, Wallace Jackson was in any position to repay any loans advanced on this basis.
113Finally, the fifth alleged acknowledgement is a letter in writing and again signed by both Singer and Smith.
114The letter made reference to 12 separate loans and refers to a schedule of each loan made by GHM.
115Wallace Jackson contended that this letter was not an acknowledgment that the debt was due and payable, but merely stated the amount of each loan and the date on which it was made. I find that this letter was not an acknowledgment by Wallace Jackson that the debt was due and payable. The letter did not acknowledge Wallace Jackson’s legal liability to immediately repay the loans made by GHM to it.
116In the circumstances, I find that there was no acknowledgement made by Wallace Jackson. Consequently, the plaintiff’s cause of action to recovery of the loans is barred pursuant to section 5(1)(a) of the Limitations Act. However, if I find that a part payment of the debt was made by Wallace Jackson to GHM in 2016, GHM’s cause of action may nevertheless be said to have been revived.
Was the payment made by Wallace Jackson to GHM in 2016 a part payment for the debt?
117GHM also submitted that there was a payment from the Wallace Jackson to GHM which triggered the operation of section 24(3)(b) of the Limitations Act – it was said to be a part payment of a loan made by GHM to Wallace Jackson.
118Wallace Jackson’s financial statements for the financial year ending 30 June 2016 recorded a credit of $471 in reduction of Wallace Jackson’s liability to GHM.
Legal Principles
119GHM must show that there was a causal link between the payment made in 2016 and the debt owed by Wallace Jackson.[31]
[31] Michell v Onroad Offroad Pty Ltd [2018] VSC 648, [110].
120This requirement was considered by Kerr J in Surrendra Overseas Ltd v Government of Sri Lanka:
“A part payment, like an acknowledgment, can only revive the cause of action and start time running afresh if it provides evidence in the form of an admission by the debtor that the debt remains due despite the passage of time.”[32]
[32] [1997] 1 WLR 565, 576.
Analysis
121While Singer contended that there was no payment of $471 made to GHM, Wallace Jackson’s accountant Mr Dunn agreed with GHM that the 2016 financial statements recorded a payment to it of $471.
122While Wallace Jackson failed to explain why the payment was made to GHM, there is insufficient evidence to allege that Wallace Jackson made the payment in respect of the debt owed to GHM. The causal link cannot be drawn. Therefore, the payment cannot be characterised as an admission for the purpose of the Limitations Act.
123For the above reasons, GHM’s claim would nevertheless fail because no part payment in relation to the loans made by GHM to Wallace Jackson has been established. Consequently, GHM’s action for recovery of the loans is barred pursuant to section 5(1)(a) of the Limitations Act.
Conclusion
124In summary, I find that the loans made by GHM to Wallace Jackson were repayable upon the termination of the WJ Unit trust or the sale of the property, which ever occurred first. I note also the acknowledgement by Wallace Jackson that GHM was entitled to recover its loans once it sold its units in the WJ Unit Trust. Accordingly, I dismiss GHM’s present claim for repayment.
125I direct the parties to confer about the form of final order and costs in an effort to agree upon orders giving effect to this judgment. If they cannot agree, then by 4:00pm on 16 June 2021, each party is to file with my chambers and serve a written submission setting out the orders sought and the reasons therefor. The submissions are not to exceed five A4 pages, a minimum 12 point typeface, and 40mm margins on either side of the page. By 4:00pm on 18 June 2021, each party may file a reply submission limited to no more than three A4 pages.
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