Gray v Gray

[2004] NSWCA 408

CITATION:	Gray v Gray [2004] NSWCA 408
HEARING DATE(S):	31/08/04
JUDGMENT DATE:	11 November 2004
JUDGMENT OF:	Sheller JA at 1; Bryson JA at 2; Young CJ in Eq at 3
DECISION:	Appeal allowed only to the extent of deleting orders 1(c) and 1(d), 2(c) and 2(d) and adjusting monetary sum. Costs to be dealt with later.
CATCHWORDS:	Equity- Administration of estate- Rule in Cherry v Boultbee- Effect of NZ Statute of Limitations which barred remedy only- What interest must be paid on taking of accounts.
LEGISLATION CITED:	Limitation Act, 1950 (NZ)
CASES CITED:	A E Goodwin Ltd v A G Healing Ltd (1979) 7 ACLR 481 Australian and New Zealand Banking Group Ltd v Douglas Morris Investments Pty Ltd [1992] 1 Qd R 478 Boddam v Ryley (1762) 1 Bro CC 239; 28 ER 1104 Byrn v Godrey (1798) 4 Ves 6; 31 ER 3 Calton v Bragg (1812) 15 East 223; 104 ER 828 Campbell v Graham (1831) 1 Russ & M 453; 39 ER 175 Campbell v Sandford (1834) 8 Bligh NS 622; 5 ER 1073 Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171 Cityland & Property (Holdings) Ltd v Dabrah [1968] Ch 166 Courtenay v Williams (1843) 3 Hare 539; 67 ER 494 Courtenay v Williams (1846) 15 LJ Ch 204 Dingle v Coppen [1899] 1 Ch 726 Fleming v Beevers [1994] 1 NZLR 385 Heydon v Perpetual Executors, Trustee & Agency Co (WA) Ltd (1930) 45 CLR 111 Joaquin v Hall [1976] VR 788 Jones v Padavatton [1969] 1 WLR 328; [1969] 2 All ER 616 Lewis v Cook (2000) 18 ACLC 490 Mendl v Smith (1943) 112 LJ Ch 279 Nelson v Nelson (1995) 184 CLR 538 Re Akerman [1891] 3 Ch 212 Re Bickerdike (No 2) [1919] VLR 62 Re Drax [1903] 1 Ch 781 Re Fox, Walker & Co; Ex parte Bishop (1880) 15 Ch D 400 Re Peruvian Railway Construction Company Ltd [1915] 2 Ch 144 Re Sewell [1909] 1 Ch 806 Re Swan's Estate (1869) 4 Ir Eq 209 Schmierer v Taouk (2004) 207 ALR 301 Seldon v Davidson [1968] 2 All ER 755 Thiess v TCN Channel 9 Pty Ltd (No 5) [1994] 1 Qd R 156 Upton v Ferrers (1801) 5 Ves 801; 31 ER 866 Whiteley v Hodge [2000] NSWSC 1161 Williams v Vicroft Pty Ltd (Powell J, 31.5.1989)
PARTIES :	Robert John Charles Gray (Appellant) Rollo Ventry Wakefield Gray (1st Respondent) Guardian Trust Australia Ltd (2nd Respondent)
FILE NUMBER(S):	CA 40074/03
COUNSEL:	T Lynch (Appellant) D P F Officer QC and P M Lane (1st Respondent) M S Willmott SC (2nd Respondent)
SOLICITORS:	Turner Freeman Lawyers (Appellant) Teece Hodgson & Ward (1st Respondent) Mallesons Stephen Jaques (2nd Respondent)

LOWER COURTJURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	114938/99
LOWER COURT JUDICIAL OFFICER :	Austin J

40074/03

SHELLER JA
BRYSON JA
YOUNG CJ in EQ

Thursday 11 November 2004

ROBERT JOHN CHARLES GRAY v ROLLO VENTRY WAKEFIELD GRAY & ANOR

Judgment

1 SHELLER JA: I agree with Young CJ in Eq.

2 BYRSON JA: I agree with Young CJ in Eq.

3 YOUNG CJ in EQ: This is an appeal from Austin J who heard a series of disputes arising out of the estate of the late Lillian Ethel Ashton Gray or Gray-Smith.

4 Mrs Gray had two sons, Ventry and Robert. There was no love lost between those sons.

5 Mrs Gray died on 21 January 1999 leaving a will bearing date 25 June 1998 of which probate was granted to Guardian Trust Australia Ltd (the Trustee) by this Court on 8 March 1999. It is convenient, and no disrespect is meant, to refer to the testatrix's sons by their preferred forename. Ventry and Robert are the residuary beneficiaries named in the will.

6 Ventry commenced proceedings in the Probate List of the Equity Division for declaration that the assets of the estate comprised certain particular pieces of property. The defendants were the Trustee and Robert. The Trustee filed a cross-claim, the cross-defendants being Ventry and Robert seeking a declaration that Robert was bound to account to the estate for various sums referred to in the schedule, or alternatively, that the proceedings be remitted to a Master in Equity to enquire into and determine the monies and interest owing by Robert to the estate.

7 The proceedings came on before Austin J who gave judgment on 18 December 2002. His Honour made four declarations as follows:

A. The payment of NZ$5,000 made by Mrs Gray to Robert on 10 July 1984 was by way of loan.

B. The payment of NZ$156,732.72 made by Mrs Gray to Robert on 23 March 1988 was by way of loan.

C. The payment of AU$2,000 made by Mrs Gray to Robert on 3 December 1996 was by way of loan.

D. The payment of AU$10,000 made by Mrs Gray to Robert on 17 March 1998 was by way of loan.

His Honour then ordered that in the administration of the estate Robert was to be charged with repayment of those loans plus interest at the rate prescribed under s 94 of the Supreme Court Act.

8 Robert brings this appeal to challenge each of the four declarations and to challenge his Honour's determination with respect to interest.

9 I should note that I have only mentioned that part of the case below which is of relevance to this appeal. On some other issues, Robert succeeded.

10 The oral hearing of the appeal took place on 31 August 2004. Mr T Lynch of counsel appeared for the appellant. Mr D Officer QC and Ms P Lane appeared for Ventry and Mr M Willmott SC appeared for the Trustee.

11 It is convenient to deal with the matters that arise under six headings as follows:

(1) The NZ$5,000 transaction.

(2) The NZ$156,732.72 transaction.

(3) The AU$10,000 transaction.

(4) The AU$2,000 transaction.

(5) The matter of interest.

(6) The result of this appeal.

12 Before I commence to deal with the individual matters, I should make a couple of general comments.

13 First, the proceedings commenced in an unusual way by a residuary beneficiary in what appears to be an estate which is not fully administered seeking declarations in the Probate List that certain assets form part of the estate. This looks mighty like an administration suit and this fact may have some significance. Secondly, the learned Judge charged Robert with interest well over and above that accruing in the period allowed by the NSW Limitations Act. He reached that result because he held that New Zealand law applied and the Limitation Act 1950, New Zealand, renders a statute barred debt unenforceable, but does not purport to extinguish the debt as occurs under NSW law. Thirdly, he applied the rule in Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171, that as Robert was a claimant as a beneficiary under the estate, he needed to set off what was due by him to the estate without regard to limitation periods. None of these matters was seriously challenged before us.

14 The case raises the very awkward situation in which a Judge has to adjudicate as to whether a transaction was one of gift or is one of loan where the principal actor is dead or unavailable, there is inadequate recording of the transaction (or at least the Court is not presented with an accurate recording of the transaction), and virtually all that is before the Court is the fact of payment.

15 In Seldon v Davidson [1968] 2 All ER 755, the English Court of Appeal held that where it is proved that money has been paid to the defendant and the defendant alleges that the payment is a gift, the burden of proof is on the defendant, because in the absence of the presumption of advancement applying, or that the money had been paid in settlement of an existing debt, the admitted payments imported a prima facie obligation to repay.

16 However, in Joaquin v Hall [1976] VR 788, Jenkinson J, when a Justice of the Supreme Court of Victoria, held that there is no presumption of an obligation to repay from the fact of payment to a stranger and that the burden of proof in such circumstances lay upon the plaintiff to establish that the money was lent and not given. His Honour held that the High Court decision in Heydon v Perpetual Executors, Trustees & Agency Co (WA) Ltd (1930) 45 CLR 111 was to the contrary of Seldon v Davidson, thus that decision should not be followed. This view has subsequently been put forward in Australia on many subsequent occasions, the most recent of which appears to be Schmierer v Taouk (2004) 207 ALR 301, 313. In that case at [59] White J listed the authorities to which can be added Thiess v TCN Channel 9 Pty Ltd (No 5) [1994] 1 Qd R 156, 177, where the Queensland Full Court, which included McPherson SPJ as his Honour then was, spoke of the legal presumption of gift that is said to arise in a case of this type which falls to be rebutted by evidence from the plaintiff.

17 Accordingly, the onus is on those claiming the set-off of Robert's debts to prove that the amounts are really debts.

18 With this background I will approach the six headings that I outlined earlier.

19 (1) As his Honour said when referring to the $5,000 loan in New Zealand currency, the evidence on this matter is "quite sketchy". It would seem that the New Zealand election of 1984 caused Robert to think that if he was going to buy a car, as he intended, he should do so before the election. He made this known to his mother. His mother sent $5,000 dollars in New Zealand currency to him. The learned Judge said that Robert "gave evidence that he bought a Nissan 180 in about 1984 and that he received no financial assistance from his mother in respect of the purchase of any other car. He said that his mother gave him $5,000 towards the purchase of the Nissan 180 in 1984 but that it was not a loan. … His supplementary evidence in chief was that the money 'just turned up', and there was no discussion about the terms of the payment. Later, in cross-examination, he recalled that he and his mother had had a discussion about a car in which he explained his needs for a car and that he intended to pay a deposit and enter into a hire purchase commitment, and she told him she would provide money."

20 The way this evidence came out did not impress the Judge at all and he found that the defendant was lacking in candour. He also said that it would be surprising if nothing was said as to whether the money was provided as a loan or a gift. However, as counsel for Robert pointed out, the fact that the Judge considered Robert was lacking in candour and was surprised that nothing was said does not mean that the plaintiff has thereby overcome the onus of proof.

21 However, the evidence goes further than this. As his Honour says, there was an undated note in which Robert sent a card to his mother thanking her for what she did and adding "Some day it will be repaid". There is also a letter set out on pages 159-160 of the combined appeal book which appears to be mid-1984 in which Robert writes to his mother, "Take care of yourself and thank you for your assistance in our purchase. As I said if need requires it then it can be sold relatively quickly for a good price so don't worry about it."

22 I agree that the learned Judge could fairly come to the conclusion from this material bearing in mind Robert's unreliable evidence and that there was no other material available to him to conclude that the circumstances suggested a temporary financial accommodation and that the $5,000 was a loan.

23 (2) The largest amount of money was the claim for NZ$156,732.72.

24 I will endeavour to abbreviate the background. I would start from 1987. It appears that as a result of some beneficence by Ventry, Mrs Gray became the sole beneficial owner of a property in New Zealand known as the Dorchester Apartment. It would also seem that Robert was living in the apartment. Mrs Gray proposed to sell it. Robert, in an undated letter, raised with his mother the subject of purchasing a property and wrote "Before I do anything I need to know how much, if at all anything, you will allow me to use from the sale of the apartment". He said he needed to know his mother's intentions fairly rapidly.

25 There was no evidence of a direct reply to this letter. Mrs Gray sold the Dorchester Apartment early in 1988. Robert said in evidence, and the Judge accepted, that his mother telephoned him and said, "I'm not happy to see you and Stefan (his son) renting accommodation. I want you to buy a house using the proceeds of sale of Dorchester."

26 A Mr Cuttance, solicitor, acted for Mrs Gray in respect of the sale. Mr Cuttance was subsequently struck off the Roll of Solicitors in New Zealand, was convicted of offences and did not give evidence. However, some evidence was given by one of his former partners, a Mr Bruce Campbell, to which I will come in due course.

27 Mr Cuttance also acted for Robert in respect of a purchase of property at Oban Street, Wadestown.

28 Mr Cuttance wrote Mrs Gray a letter dated 12 January 1988. It is reproduced on pp 161 and 162 of the appeal book. The letter contained the following pararaph:

"Robert has instructed us that he is wishing to buy a property in Wellington and he has proposed that you should make an advance of $160,000 to him to assist him with the purchase of this property. The property would be purchased in his name, and it is suggested that you would hold an unregistered mortgage over the property for the advance made to him. It is proposed that the advance would be for a period of 2 years, and that interest would be payable on it at the rate of 15% per annum, payable by monthly payments. Robert would have the right to make early repayment of the loan without penalty if this was required."

29 The last paragraph of the letter asked Mrs Gray to sign and return the enclosed copy of the letter if she agreed with the proposals. There is no evidence that she ever did so.

30 Robert denied at first that that letter was written on his instructions, but later modified his evidence. The learned Judge held that it was more likely than not that he approved the substantial contents of that letter.

31 Mr Cuttance in due course sent to Mrs Gray a statement dated 17 June 1988 which noted that he had sent her $111,859.31, that he had paid $3,000 to "Bob Gray" and the balance of $153,732.57 had been "transferred to account R J Gray". Those two sums make up the present claim. The sums are in New Zealand dollars.

32 Although the sale of the Dorchester Apartment had been completed early in 1988 Robert complained to Mr Cuttance on 16 June 1988 that he had not received any proper accounting and he needed that. Mr Cuttance answered that letter on 17 June 1988. The penultimate paragraph of this letter read as follows:

"There is one other matter outstanding and that relates to some form of acknowledgement of debt between yourself and your mother for the moneys which you have borrowed from her. At one stage, she had advised me that she wanted a monthly repayment of $500.00 from you but I appreciate that that arrangement may have changed. Should we be preparing some form of acknowledgement of debt? If so, can you tell us what the terms of that should be."

33 On Robert's copy or the original of this letter, Robert has written "I advised him that we will probably be making these arrangements separately and would advise him at a later date. I did not mention my plans to arrange this through another lawyer, namely Kaye."

34 I mentioned Mr Campbell, solicitor. His evidence was that under New Zealand law, gift duty is payable on gifts made in New Zealand. The duty on the gift of the amount transferred to Robert would have been about $27,0000. Mr Cuttance practised in the areas of conveyancing and estate planning and the Judge inferred he was well aware of the requirements of New Zealand gift duty law. The Judge accepted that it was a fundamental professional responsibility of a New Zealand solicitor acting in a transaction where a gift has been made to ensure that the donor was aware of the obligation to lodge a gift duty declaration. There was no evidence in the solicitor's file of any gift duty declaration having been prepared or lodged or payments made. He concluded at [27]:

"The absence of a gift duty declaration is not fatal to the transaction having been a gift, for there may be an explanation for the absence of the declaration; but in a family transaction for a large amount where a solicitor is involved, it would be very unlikely that the transaction would have been by way of gift if there were no gift duty declaration."

To my mind that seems to be a reasonable inference.

35 Relationships in the family deteriorated. In late 1989 Mr Len Hattersley, a Sydney solicitor, came to act for Mrs Gray. He commenced pursuing Mr Cuttance and others about this transaction.

36 On 30 June 1989 Mr Hattersley wrote to Mr Cuttance that Mrs Gray was experiencing financial problems; she was reluctant to put pressure on Robert, but something had to be done and that it was essential whilst arrangements were being made, that Robert should be paying his mother instalments of interest. There was no reply to this letter. On 7 August 1989 Mr Hattersley wrote another letter to Mr Cuttance saying:

"… Robert appears to take the attitude that he is entitled to retain and enjoy the sum of NZ$153,000.00 odd which Mrs Gray would say was lent to him repayable on her demand."

There was no reply to this letter.

37 On 3 October 1989, Mr Hattersley wrote to Mrs Gray with a draft of a letter he proposed to send direct to Robert and commented:

"I appreciate that it might be in stronger terms than you might approve but frankly speaking I believe he should be told the truth. I have respected your request that I do not require him to pay any interest. However having stated the facts he must come to the obvious conclusion that some reasonable type of financial offer is required of him."

38 A letter more or less in terms of the draft was sent direct to Robert by Mr Hattersley on 6 October 1989. He also instructed a New Zealand solicitor, Mr Ranford, in the matter. On 31 October 1989 Mr Hattersley again wrote to Robert and said:

"I find it more than disturbing not to have received any response from you to my letter of 6 October 1989."

39 On 19 November 1989 Robert replied. That letter contained the following relevant material:

"The reason no formal documentation has yet been made of the loan I received from Mother from the sale of Dorchester is due to my inability to finalise the settlement of my interest in the property at Paekakariki …".
"My proposal was and still is that the property be sold and all proceeds be immediately forwarded to Mother as part payment towards the loan advanced by her to myself. …"

40 On the second page of the letter the fifth last paragraph commenced:

"The house we purchased with Mothers loan is a very simple ex 'Railways House' … ".

The parapenultimate paragraph said:

"Should it be necessary we are quite prepared to sell this property so that Mothers Loan to me can be paid off …".

41 The Judge said that Robert "endeavoured to explain the use of loan terminology in his letter on the basis that he was simply responding to the terminology used by Mr Hattersley. I find that explanation implausible, having regard to the terms of the letter and the context in which it was written. If the second defendant believed that his arrangement with his mother was a gift rather than a loan, and that he would accept a moral obligation to financially assist his mother, as a good son, without any legal obligation to repay, his reply to Mr Hattersley gave him a very good opportunity to say so. Instead, he wrote a letter which plainly and expressly acknowledged that the transaction was a loan". In my view that finding was clearly open to his Honour.

42 However, there was some more evidence. In Robert's affidavit of 3 September 2001, para 40, he said that after the conclusion of the court case between Mrs Gray and Ventry, "… Mr Hattersley and myself discussed options as to how we could assist with the money still owing on the Balgowlah property [the Balgowlah property was where Mrs Gray was living and in which she had some problems paying the mortgage]. I said to Mr Hattersley words to the effect 'I will repay the monies used to purchase the property at Oban Street either by raising a mortage or by selling both the Wadestown property and/or the Paekakariki property.' "

43 The learned Judge thought that the word "repay" was significant: I consider he was justified in taking that view.

44 On 24 May 1990, Mr Ranford wrote to Mr Hattersley a letter which contained the following:

… the proceeds of sale of the Paekakariki property would be used to repay Mrs Gray Senior. I understand, and from memory, that Robert Gray owes his mother approximately $145,000NZ. Perhaps you could confirm the present indebtedness to Mrs Gray Senior."

Mr Hattersley replied that the indebtedness was NZ$156,732.57.

45 In 1990 Mrs Gray made a will which was drafted by Mr Hattersley. He also prepared a draft statutory declaration which he forwarded to Mrs Gray but there was no evidence to suggest that she ever signed it. The statutory declaration noted that she had made no provision for Robert because she had more than adequately provided for him in the loan of $156,000 for which he had never paid any money back nor any interest. The learned Judge concluded that although the text was not clear, the draft statutory declaration suggested either an intention to release the debt or that the "loan" was not an asset of Mrs Gray's estate.

46 Mrs Gray made a new will on 17 August 1995. By this will she gave the whole of her estate to Robert and expressly released him from "the debt of NZ$150,000.00 lent by me to assist in the purchase by my son of the property … and interest owing on the debt at the date of my death."

47 Although Mrs Gray made further wills after 1995, there does not appear to be in any of the wills or any of the extant instructions for will, any reference to the $156,000.

48 Mrs Gray died on 21 January 1999.

49 On 15 April 1999, after having received information from Ventry, the Trustee wrote to Robert asking for his comments on Ventry's allegations that there were monies owing by Robert to the estate. On 10 May 1999, Robert replied in a letter. The letter contained the following paragraph:

"In answer to your questions:
1. No there are no loan documents between Mother and I. No monies passed between us (either way) were ever regarded as loans. Mother and I had a very good relationship and she flatly refused to consider anything she did with or for us was to be regarded as a loan."

On 7 June 1999 the Trustee again wrote to Robert and Robert replied on 4 July 1999 that there were no loans for the Trustee to investigate.

50 On 5 November 1999 the Trustee again wrote to Robert putting to him specific passages from the correspondence between Mr Hattersley and Robert. Robert was asked to review his position and give the Trustee a complete summary. There was no reply until June 2000 to the effect that if the Trustee wished to recover alleged debts it would need to sue for them.

51 On 27 October 2000, the New Zealand solicitor acting for Robert wrote to the solicitor for the Trustee a letter which contained the following:

"With respect, the memorandum outlining the alleged legal position is based upon a false assumption, namely that the advances to Robert Gray are in the nature of loans. …
The Late Mrs Gray gifted $145,000 being part of the proceeds of sale to Robert Gray to enable him to purchase a property. …
Mrs Gray told Mrs Winton she was gifting monies from the proceeds of sale of the Dorchester Apartment to Robert Gray to enable him to purchase a house.
Mrs Winton has a great deal of additional information relating to the financial affairs of the Late Mrs Gray. Mrs Winton is prepared to swear an affidavit detailing her knowledge of these matters."

52 The Judge said at [67] of his judgment:

"Mrs Winton provided an affidavit but it was not read. It is appropriate to infer, and I do infer, that the evidence would not have assisted [Robert's] case."

He was fully entitled to make that comment.

53 The learned Judge found that on the material before him the transaction was one of loan at interest.

54 Both before the learned Judge and before this Court, a fourfold defence was developed by Robert, which in descending order of preference, was:

(i) there was a family arrangement, not a legal transaction between mother and son;

(ii) the presumption of advancement applied;

(iii) the whole of the evidence suggested that the transaction was one of gift, not loan; and

(iv) if it was a transaction of loan, the debt had been released.

I will briefly deal with each of these in turn.

55 (i) The prime authority relied on was Jones v Padavatton [1969] 1 WLR 328; [1969] 2 All ER 616. In that case a mother made an arrangement with her daughter that if the daughter would give up her employment in America and read for the Bar in England, the mother would give the daughter $200 a month. The daughter did so; the arrangement was later varied that the mother would provide a house in which the daughter could reside. Later, after a dispute between mother and daughter the mother sought possession of the house. The Court of Appeal held that on the facts the arrangements in relation to the house were made without contractual intent and were a family arrangement and accordingly the daughter had no defence to the mother's claim for possession of the house.

56 That decision was followed by the Court of Appeal in Fleming v Beevers [1994] 1 NZLR 385. When giving the judgment of the Court, Tipping J said at 389:

"The range of circumstances in cases such as these is likely to be so varied that in any particular case a presumption, albeit a fact, is likely to be of limited assistance. Each case will turn on its own facts and there is no substitute for a careful examination of those facts. The subject-matter and attendant circumstances may well suggest that the parties had no intention of creating a legally enforceable obligation. The converse may equally be true."

57 Austin J held that on the facts of this case it was distinguishable from cases like Jones v Padavatton. He said:

"In my opinion that reasoning [the reasoning of Salmon LJ in Jones] is inapplicable where a mother provides a very large sum of money, more than half her wealth, to her son so that he can buy a house. The amount involved, and the significance of the amount to the wealth of the mother, suggests an intention to create legal relations … . In my view the present case is not a case of non-binding family arrangement. It is true, as counsel for the second defendant emphasised, that much of the language used in the conversations with his mother to which the second defendant deposed, and in the correspondence, was informal and non-mandatory. Lying behind that polite language, however, was the idea asserted by Mrs Gray through her solicitor Mr Hattersley, and by Mr Cuttance, and by the second defendant himself, that the money was paid by way of loan and therefore there was a legal obligation to repay it when required."

In my view his Honour was well able to take that view on the evidence before him.

58 (ii) His Honour acknowledged, that at least after Nelson v Nelson (1995) 184 CLR 538, the presumption of advancement applies in the case of mother and child. However he said at [81]:

"The presumption of advancement is only of limited use, because it is rebutted by evidence of actual intention. The evidence that I have summarised shows … that the intention of Mrs Gray and the second defendant at the time of the payment transaction was that it would operate as a loan rather than as a gift. The same evidence applies to exclude the application of any presumption of advancement in favour of the second defendant."

For the reasons which I have set out earlier and which I will supplement in the next heading, his Honour was well able to reach this view on the evidence.

59 (iii) I have set out earlier a whole host of passages from Robert's own evidence and letters in which the words "repay", "indebtedness" etc have been employed.

60 Both before the trial judge and before this Court Robert's counsel endeavoured to say that words such as "advance" and "obligation" did not necessarily refer to a legal debt. The proposition as an abstract one is correct, but the context in which the words were used by Robert show that in the present case they were more likely to refer to a debt than anything else.

61 The argument was also put that Robert made an offer via Mr Cuttance's letter of 12 January 1988 that there would be an advance for two years with interest at 15% and that this would be secured by unregistered mortgage. However, Mrs Gray never, as requested, sent back a signed copy of the letter acknowledging that she agreed with this offer. Accordingly, one must assume that she rejected it. Therefore, when the money was paid by Mr Cuttance to Robert it was paid otherwise than as a loan on mortgage, there is no evidence as to why it was paid; therefore anyone who alleges that it was a loan has failed to satisfy the onus of proof. The accounts which Mr Cuttance sent both to Mrs Gray and Robert in June 1989 show that Mrs Gray was fully aware that Mr Cuttance had advanced monies to Robert.

62 I reject this submission. Mr Lynch who appeared for Robert said that there was no evidence of acceptance. However, when one looks at the subsequent facts that there was a proposal made by a solicitor on behalf of Robert and then that solicitor later advanced monies to Robert and subsequently there was correspondence in which the parties referred to the words "loan" and "repayment", the great probabilities are that the payment was made by way of loan. Whether it was a loan at 15% per annum I will deal with in section (5).

63 In addition to all of this the Judge rejected Robert's evidence as being self-contradictory and implausible and whilst this does not prove the opposite, it in all the circumstances is a factor which goes into the weight which justified his Honour in finding against Robert in the way he did.

64 (iv) In Robert's affidavit of 3 September he swore:

" [D]uring 1990 Mum phoned me and said words to the effect 'I've lost confidence in Hattersley and I'm not happy with what he is doing. I do not want you to have any further contact with him'. At around the same time, Mother said words to me to the effect 'as far as I am concerned you can forget about the money, what I need and what I want from you is for you to come over and visit me as often as you can for as long as you can'."

65 His Honour noted that the voluntary release of a legal right by writing not under seal is usually ineffective; see Byrn v Godrey (1798) 4 Ves 6; 31 ER 3; Lewis v Cook (2000) 18 ACLC 490 and see the discussion in Meagher, Gummow and Lehane's Equity Doctrine and Remedies 4th ed (Butterworths, Australia, 2002) [35-010].

66 However, noting that Meagher, Gummow and Lehane say that there is some confusion in the law on this subject, his Honour said that as a matter of fact he could not be satisfied that there was a release. He said:

"First, Mrs Gray's statement, as recounted by the second defendant, places emphasis on her desire to be visited, and her statement to 'forget about the money' is merely an introduction to her main point. That would be a remarkably informal way to release an entitlement to a sum of about $150,000, and I therefore think it unlikely that the statement (if she made it) was intended to be a release or forgiveness of the loan."

His Honour then referred to the statements made in the 1995 will and held as a matter of fact there was no release. This was well within his Honour's mandate as a tribunal of fact.

67 Accordingly, I would uphold the view that the NZ$156,732.57 was a loan and not a gift.

68 (3) There is evidence on a bank statement showing AU$10,000 was debited to Mrs Gray's bank account and the cheque butt is endorsed "Transfer Robt Gray". Robert gave evidence that while he was an insurance salesman he had a number of situations where he was required to refund commissions and was running short of cash. His evidence was he mentioned this to his mother and she sent him a cheque for $10,000. He said he did not ask for the money. She did not tell him it was coming, and after getting it, he thanked her.

69 There was actually no evidence at all as to this transaction other than the mere receipt of money which, as I have indicated at the commencement of these reasons, is in itself insufficient and the person who alleges that the transaction is a loan bears the onus of proof. His Honour at para 102 of his judgment reasoned virtually from similar facts that as Mrs Gray had already lent her son much more substantial money, it was likely that the provision of this further sum was treated by the parties as an additional loan. With respect to his Honour, I do not consider that one can reach this conclusion.

70 (4) As to the final transaction of AU$2,000, again, the only material is a cheque butt dated 3 December 1996 marked "RJG" for $2,000 and the bank statement showing that this amount was debited to Mrs Gray's Australian account. His Honour applied the same reasoning to this transaction as to the third transaction, and for the same reasons I must find for Robert on this transaction.

71 (5) The question of interest in this case is a very significant one as the interest on the NZ$5,000 loan was calculated by his Honour at NZ$1,936.98 and the interest on the large loan at NZ$260,721.54. Interest, accordingly, is more than 50% of the amount for which the Judge found Robert liable to the estate.

72 There is no doubt at all that as a general proposition both at law and in equity "Nothing but what arises from a contract, agreement, or demand of a debt, can give rise to a claim of interest and this Court [Equity] in these cases follows a court of law". The quotation is from Henry Maddocks, Treatise on the Principles and Practice of the High Court of Chancery (1820) Vol 1, p 611. The proposition is supported by Boddam v Ryley (1762) 1 Bro CC 239; 28 ER 1104; Upton v Ferrers (1801) 5 Ves 801, 806; 31 ER 866, 869 and Calton v Bragg (1812) 15 East 223; 104 ER 828, as well as in a host of more modern authority.

73 In Williams v Vicroft Pty Ltd Powell J, 31 May 1989, unreported, his Honour said at BC8902116 at 65 (omitting reference to authority):

"The general rule at common law is that, in the absence of express agreement, or some course of dealing or custom to that effect, interest is not payable on a debt or loan … . The general position in equity is, however, different, the rule in equity being that, in the absence of any agreement, or custom, to that effect, interest is payable. Thus, interest is payable on a mortgage debt even though the relevant mortgage contains no mention of interest."

His Honour's authority for the proposition in that last sentence is Mendl v Smith (1943) 112 LJ Ch 279. Hamilton J followed that proposition in Whiteley v Hodge [2000] NSWSC 1161, [10].

74 I mentioned during argument that I had fears that that proposition was too widely expressed. Those fears stem from the broad proposition which I have quoted from Maddocks which I have always understood to be the classic law. However, there is abundant authority for the proposition that the equitable principle extends beyond transactions by way of mortgage. Thus, if a surety has to pay the principal debtor's account, the surety is able to charge the principal debtor interest at a rate fixed by the court notwithstanding that the principal debt itself did not carry interest; see Rowlatt on Principal and Surety 5th ed (Sweet & Maxwell, London, 1999) 7-09; Re Fox, Walker & Co; Ex parte Bishop (1880) 15 Ch D 400, 421-2; Re Swan's Estate (1869) 4 Ir Eq 209 and A E Goodwin Ltd v A G Healing Ltd (1979) 7 ACLR 481, 492. The principle may also extend in equity to cases where there are intercompany debts where there is no express promise to pay interest and the companies end up in liquidation or administration; see the A E Goodwin case at 494-5.

75 It is unnecessary in this case to speculate just how far the wider principle in equity departing form the common law rule extends. This is because it is clearly applicable in mortgage situations. In view of the facts as found by the learned trial judge and as affirmed in these reasons, the present transactions which have been held to be loans are in this category.

76 The Australian edition of Fisher & Lightwood on Mortgages (Butterworths, Sydney, 1995) para 39.39 sets out the law. The relevant sub-paragraph, omitting case references says:

"Despite the general rule, interest is payable upon mortgage debts, even though it is not expressly reserved … unless inconsistent with the terms of the mortgage. This applies although the mortgage is only equitable including a charge by mere deposit of title deeds, and generally where the principal sum is a charge on specified property."

77 The leading authority is Re Drax [1903] 1 Ch 781, a decision of the English Court of Appeal. At 793 Colllns MR said:

"It seems to me to be well established on the authorities … that a Court of Equity has power to give interest, and in point of fact does so where a charge is created on land, although there are no words allowing interest in the instrument creating the charge. Indeed, we go back to the principle laid down in many cases shewing that, in point of fact, the Court of Equity does charge interest."

Romer LJ and Cozens-Hardy LJ delivered separate judgments to the same effect.

78 One of the more recent authorities on the point is Cityland & Property (Holdings) Ltd v Dabrah [1968] Ch 166, a decision of R W Goff J who was then sitting in the English Chancery Division. His Lordship stated that he would not have allowed interest in that case . He said at 182:

"True it is, as a general rule, that a mortgage debt carries interest in the absence of an express provision, but that is because, as stated in the Irish case of Carey v Doyne, (1856) 5 Ir Ch Rep 104 and approved in Re Kerr's Policy (1869) LR 8 Eq 331, it would be inequitable to allow redemption without payment of interest; or, as it was put in Mendl v Smith (1943) 112 LJ Ch 279 interest is allowed unless there is any contractual right or equity to exclude it."

79 His Lordship then went on to consider the rate of interest. He said that he thought the traditional 5% was too low and continued:

"If one is charging interest on the actual loan, one ought at least to give market rates and possibly, in the circumstance of this case, somewhat more. But I have not been addressed on the rate of interest. At present advised I propose to allow 6 per cent, but I will hear counsel … ."

His Lordship then heard counsel and continued:

"I do not accept the submission that it should be 9½ per cent but I think my initial idea of 6 per cent was too low and I will fix it at 7 per cent because that is a rate which I have chosen on the facts of this case and it has no bearing upon what will be the proper rate for working out any other quantity, or even this one, in any other case."

80 That final passage suggests that the rate is one for the discretion of the trial judge as to what is appropriate in all the facts and circumstances of the case and that it is usually appropriate for evidence to be tendered as to what is the market rate, but if no such evidence is tendered, the Judge still must do the best he or she can in the circumstances and on the evidence that is presented.

81 So far as the largest transaction is concerned, Austin J noted that the plaintiff contended that the rate should be 15%, or alternatively a reasonable rate, or yet again, 15% for two years and thereafter at a reasonable rate. His Honour noted that in subsequent dealings there was no mention of 15% and then said at para 87:

"In all the circumstances, I conclude that the arrangement between the parties was that the balance outstanding from time to time would bear interest at a reasonable rate, for the common intention was that interest would be paid but the quantum was not settled. The third alternative advanced by the plaintiff does not appear to me to accord with such evidence as there is concerning intention of the parties. It is appropriate, in my view, to use the rates set out in Schedule J to the Supreme Court Rules in circumstances such as these."

82 The appellant put that there was no common intention at all that the loan should bear interest. If that were right, it still would make very little difference because the way the cases have gone show that interest is payable unless the circumstances show it was not to be payable. The appellant also says that the subsequent communications show that Mrs Gray was not willing to charge interest. I do not consider the material is strong enough for a court to hold that this is so.

83 Mr Lynch for the appellant said that there is a distinction between a commercial transaction by way of mortgage and a family transaction, and whilst equity may imply an obligation to pay interest in the former, it would not do so in the latter. He quoted no authority for this proposition and it seems to be against the reason for the equitable rule advanced by R W Goff J in the Cityland case which I have already quoted.

84 Mr Lynch submitted that Schedule J is not a reasonable rate because: (a) the present loan was in the New Zealand market, not the Australian market; and (b) it is notorious that Schedule J rates are at least 1% higher than the commercial rates; and (c) in any event mortgage home rates are usually lower than the commercial mortgage rate. There was some discussion during argument as to whether a Judge would also need to take into account the fact that the present loan was a bit precarious because it was made to a person with few means up to, it would seem, a large percentage of the property's worth and the loan was to a relative, relatives being notorious in paying their debts to relatives only as a matter of last resort.

85 There was no factual material before the learned Judge at all on the question of what was a reasonable rate of interest. It seems to me that in such a situation where the Judge has to do the best he or she can on the material available it is not an appealable error to choose Schedule J rates.

86 Mr Officer QC for Ventry said that there were really three matters to consider with respect to the question of interest: (a) whether it was payable at all; (b) from what date; and (c) what was a reasonable rate. I believe I have already covered (a) and (c).

87 As to (b), it should first be noted that the learned Judge held that interest was payable from 17 June 1988 on the large amount, but only from the date of death on the $5,000 as there was no contractual provision that the debt would carry interest. There is no challenge to this determination. Secondly, there is no doubt at all that in the instant case New Zealand law applied and that the relevant Limitation Act only barred the remedy not the right.

88 The appellant says that it is wrong to charge him with interest on the larger amount back to the date of the loan.

89 To examine this submission, one needs to analyse the principle in Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171.

90 This rule is as formulated by Sargant J in Re Peruvian Railway Construction Company Ltd [1915] 2 Ch 144, 150, "… Where a person entitled to participate in a fund is also bound to make a contribution in aid of that fund, he cannot be allowed so to participate unless and until he has fulfilled his duty to contribute."

91 As Derham says in his The Law of Set-Off 3rd ed (OUP 2003) 1401, "It is an illustration of a more fundamental principle of equity, that he who seeks equity must do equity." The principle is not strictly one of set-off or retainer by an executor for as Kekewich J said in Re Akerman [1891] 3 Ch 212, 219, "Nothing is in truth retained by the representative of the esate; nothing is in strict language set off."

92 A leading case on the rule is Courtenay v Williams (1843) 3 Hare 539; 67 ER 494 (Wigram VC) affirmed as Courtenay v Williams (1846) 15 LJ Ch 204. Lord Cottenham LC said at 208:

"The executor is in possession of assets. He is to distribute those assets according to the will of the testator. Part of the assets are in the hands of the party who claims another portion of the assets. The executor says, 'You have assets sufficient to satisfy your demand; apply them for that purpose.' That was the rule laid down in a case, not indeed barred by the Statute of Limitations, but in a case cited at the bar, in the course of this argument; it was a case where the legatee was indebted for maintenance to the testator. The defendants', the legatees' demand (the Court says) is in respect of the testator's assets, without which the executor is not liable; and it is very just and equitable for the executor to say, that the defendant, the legatee, has so much of the assets already in his own hands, and consequently is satisfied pro tanto.
That applies directly to the present case. He has so much of the testator's assets in his hands - assets that are not recoverable at law, because they are barred by the Statute of Limitations; but they are still assets in his hands, and let him pay himself out of those pro tanto. "

93 Later, on the same page, the Lord Chancellor said:

"… though there has been no decision on the point, in all equitable cases where the debt exists, in the case of lien, the case of appropriation, and other cases of that description, the Court has always considered that the debt being a subsisting debt, the party had an equity to have that debt applied, where the circumstances were such that it could be applied without bringing an action for the purpose of recovering the amount. I think the principle of those cases is directly applicable to the present case."

94 There is no doubt that under the rule in Cherry v Boultbee, not only the debt but also interest due on the debt is able to be set against the legacy due to the debtor. This proposition is supported by cases such as Campbell v Graham (1831) 1 Russ & M 453; 39 ER 175, affirmed on appeal as Campbell v Sandford (1834) 8 Bligh NS 622; 5 ER 1073.

95 In Dingle v Coppen [1899] 1 Ch 726, 737-740, Byrne J distinguished cases under the rule in Cherry v Boultbee from other cases, saying at 740:

"… in the case of a legacy, the person indebted to the testator's estate is not entitled to claim that legacy unless he treats the legacy in one way or other as being pro tanto satisfied … by the amount due from him to the testator, although barred by the Statute of Limitations."

96 The rule in Cherry v Boultbee has its exceptions, see Derham op cit Chapter 14 and the cases which Austin J discussed of Re Bickerdike (No 2) [1919] VLR 62. However, it is not necessary to go into these matters, as the rule clearly applied in the present case.

97 It should be noted that the general equitable principle is not confined to the Cherry v Boultbee situation, but applied whenever a person seeks equity but owes money in a case where the creditor is able to claim repayment of the debt without having to bring an action to recover it, at least where the relevant limitation acts bars only the remedy; see eg Australian and New Zealand Banking Group Ltd v Douglas Morris Investments Pty Ltd [1992] 1 Qd R 478, 497.

98 The 8th edition of Hanbury, Modern Equity (Stevens, Longon, 1962) pp 44-6 deals with the rule in Cherry v Boultee. [This was the last edition edited by Professor Hanbury personally; later editors have omitted this section]. At p 46 Hanbury cites the decision of Parker J in Re Sewell [1909] 1 Ch 806 and then says:

"Equity regards the question not what A [that is the debtor] can be compelled to do, but what he ought in conscience to do, and will withhold from him the advantages which it is in his power to give him, unless he will purge his conscience by paying what he is morally bound to pay."

99 Meagher, Gummow and Lehane (4th ed) [37-145] relying on this passage note that the right under Cherry v Boultbee may be exercised against a statute barred debt.

100 In the instant case, Austin J properly found that there was an agreement that the large debt would carry interest. No interest was paid. The executor may not have been able to sue at law for the principal or all the interest, but, as discussed above, this is irrelevant when the rule in Cherry v Boultbee is involved.

101 Thus the learned trial judge's award of interest on the large debt must be upheld.

102 (6) Accordingly, the appeal must be allowed only to the extent of deleting the Judge's orders 1(c) and 1(d) with respect to the $2,000 and $10,000 transactions, deleting orders 2(c) and (d) which are consequential and adjusting the money amount by deleting the interest that was referable to the two transactions on which the appellant has succeeded.

103 So far as costs are concerned, there was no argument put before us. The learned Judge made a very complicated order for costs after hearing submissions. I believe it is wiser to publish these reasons, to have short minutes brought in and deal with costs at that stage. My preliminary view from which I am quite willing to listen to argument as to why it should not prevail is that as the appellant has succeeded only on a very minor matter in the appeal and has been completely unsuccessful on the major matters, that the appellant, despite his small success, should pay 90% of the respondents' costs.

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Last Modified: 11/18/2004