HUNTER v Krollig - [2012] SADC 66

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
HUNTER v KROLLIG
[2012] SADC 66
Judgment of His Honour Judge Clayton
17 May 2012
EQUITY - TRUSTS AND TRUSTEES - EXPRESS TRUSTS CONSTITUTED INTER VIVOS
The plaintiff and the defendant were formerly husband and wife. In 1991 they received the sum of $24,281 from an insurer following injuries to their son in a motor vehicle accident. The money was used by parties to help acquire a family home. The son achieved majority in 1994 and died in 2007.
The plaintiff as Administrator of the intestate estate claimed $85,617.78 being the $24,281 plus compound interest thereon alleging that a trust was created in respect of the insurance moneys during negotiations of a settlement in the Family Court of Australia in 1997.
HELD:
1. The defendant not a trustee as a result of Family Court negotiations in November 1997.
2. The plaintiff and defendant were not trustees of money received from insurer in 1991.
3. The entitlement of the estate against the defendant is to be determined by an agreement signed by the deceased and the defendant on 6 October 1997.
4. If the plaintiff and defendant had been trustees of money received from insurer in 1991 the trust would have been terminated by the agreement signed in 1997.
5. Claim pursuant to agreement signed in 1997 not statute barred.
6. Debt pursuant to agreement signed in 1997 not payable until three months have elapsed from demand.
Limitation of Actions Act 1936 s 35, referred to.
The Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417; Clay v Clay (2001) 202 CLR 410; Jacobs’ Law of Trusts in Australia, seventh edition, paragraph 213; Halsbury’s Laws of England, fourth edition, volume 28, page 447; Saunders v Vautier (1841) Cr & Ph 240; (1841) 41 ER 482; Dal Pont and Chalmers, Equity and Trusts in Australia, fourth edition, ; Young v Queensland Trustees Ltd (1956) 99 CLR 560; Ogilvie v Adams [1981] VR 1041; Re Brookers (Aust) Ltd (in liq); Brooker v Pridham (1986) 41 SASR 380; Gray v O'Donnell [2009] NSWSC 259, considered.

HUNTER v KROLLIG
[2012] SADC 66

The plaintiff and the defendant were married from 1974 until about 1999.
One of the children of their marriage was Leigh Norman Krollig who was born on 11 December 1976 and died on 17 November 2007. In about 1982, when Leigh was still an infant, he suffered injuries in a motor vehicle accident.
In 1991 the plaintiff and defendant jointly received two cheques from Piper Alderman which totalled $24,281. First, on or about 18 June 1991 they received the sum of $20,000 and then on or about 6 September 1991 they received the further sum of $4,281. Piper Alderman were the solicitors representing the Victorian motor vehicle insurer. No representative of that firm gave evidence. The defendant gave evidence that they met with a solicitor representing the Victorian Department of Road Transport and "the discussion was along the lines here was a cheque for $20,000 and when they had sorted out all the bits and pieces as far as costs there would be some small balance to follow".[1]
[1] T118.
Upon their receipt the two cheques were paid into a joint account of the plaintiff and the defendant. At the time Leigh was 14 years of age.
In his Defence the defendant asserts that the sum of $24,281 was paid to the plaintiff and the defendant by way of reimbursement of moneys outlaid by them with respect to medical and other expenses incurred by them in regard to Leigh.[2] However there was no evidence as to what the two cheques did actually represent or the circumstances in which the payments were made, although both parties have acknowledged that the $24,281 should be treated as Leigh's moneys.
[2] Defence para 5.3.
The defendant was asked about the expenses in connection with Leigh’s accident. He said that they installed concrete paving and ramps at the rear of the family home to assist Leigh's mobility on a surfboard with wheels that he used to move around. The defendant was asked whether there were any other expenses and replied "none other than the normal stuff that we had, we lived at Mount Pleasant so we were incurring costs, visiting him daily".[3]
[3] T117.
The money was used by the plaintiff and defendant to purchase a block of land upon which a family home was eventually constructed. Leigh resided in that home until he moved to Launceston to attend the Australian Maritime College.
When the marriage between the parties was dissolved a liability to Leigh was taken into account in arriving at a property settlement.
Leigh attained the age of 18 on 11 December 1994.
Leigh died intestate. In about September 2009 the plaintiff lodged an application with the Probate Registry of the Supreme Court to be appointed Administrator of Leigh's estate. She was granted Letters of Administration on 14 October 2010. By reason of the intestacy the estate is to be divided equally between the plaintiff and the defendant as Leigh's parents.
These proceedings were commenced by the plaintiff as Administrator of the estate on 28 March 2011. In the Statement of Claim the plaintiff alleges:
7.    In and about November 1997 in the conduct of negotiations relevant to and incidental to the dissolution of their marriage the parties:
7.1.addressed their use of the original fund;
7.2.concluded agreement upon the value of the accrued income to the original fund; and,
7.3.agreed terms upon which the aggregate sum of the original sum and agreed income ("the agreed value of the fund") continue to be held and accrue in value for the benefit of their son ("the Trust").
PARTICULARS OF THE AGREED TERMS
7.4.the then agreed value of the fund be the sum of $34,000;
7.5.the accrued value be arrived at by allowing for interest at the rate of 8% per annum compounded ("the agreed rate") over the previous six years;
7.6.the defendant assume (sic) responsibility for the Trust including liability for the past, present and future obligations owed to the deceased on account of the original fund the agreed value of the fund, and ongoing accretions.
8.    The agreed terms of the Trust are recorded in writing as follows:
8.1.in a written outline of a proposal by the defendant to the plaintiff in or about 1997 as part of the negotiations for the distribution of the property of their former marriage; and
8.2.in the orders of the Family Court of Australia relating to the distribution of the property of the marriage.
9.    Thereafter, the defendant remained and continues to be possessed of the Trust.
It is to be noted that the trust is alleged to have been created in November 1997 during the settlement negotiations in the Family Court, not in 1991 when the two cheques were paid to the parties. Also the trust is alleged to have been created by an agreement whereby in November 1997 the defendant assumed "responsibility for the trust including liability for the past, present and future obligations owed to the deceased".
In addition to the sum of $24, 281 the plaintiff claims interest. In the Statement of Claim it is alleged that at the date of death "the value of the trust" was $67,966.16 and that on 30th November 2010 "the value of the trust" was $85,617.78. On the plaintiff’s case further interest will have accrued.
The remedies sought in the Statement of Claim are:
·    a declaration as to the value of the Trust on the basis of interest at the rate of 8% per annum compounding,
·    a declaration that the defendant holds the Trust as trustee on behalf of the estate;
·    a declaration that the defendant is liable to pay to the Estate "the amount of the Trust";
·    judgment in the sum so calculated in favour of the plaintiff together with interest on the judgment sum and costs.
In his Defence the defendant denies that the sum of $24,281 was paid to or received by the plaintiff and defendant on trust for Leigh. While the Defence does not respond directly to the allegation in the Statement of Claim that a trust was created by the Family Court negotiations in 1997, the defendant disputes that a trust was ever created.[4]
[4] Statement of Claim para 10.1.
The Defence alleges that the sum of $24,281 was paid to the parties "by way of reimbursement of moneys outlaid by them with respect to medical and other expenses incurred by the plaintiff and the defendant in regard to Leigh Krollig" in respect of a motor vehicle accident in 1983 when Leigh was aged approximately 7.[5] The Defence also alleges that the sum of $24,281 was not in whole or in part a payment with respect to general damages.[6] As I have mentioned there was no evidence as to how the amount of the two cheques was actually calculated.
[5] Statement of Claim paras 5.3 and 5.4.
[6] Statement of Claim para 5.6.
The defendant has pleaded that if there was a trust he is entitled to the benefit of the defence of laches.
The plaintiff does not assert the creation of a trust at the time the cheques were received in 1991. If a trust was created in 1991 it is likely that the plaintiff and the defendant would both have been trustees.
Was the money paid in 1991 subject to a trust
There is no evidence of any trust having been created in 1991.
I accept the submission of Mr Ower, for the defendant, that there is insufficient evidence from which an inference can be drawn that the money was beneficially owned by Leigh. A guardian such as a parent is not by reason of parenthood alone a trustee of a child’s property. The Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417, 420-421; Clay v Clay (2001) 202 CLR 410, 428‑430. In Clay the High Court said:
However, in Countess of Bective v Federal Commissioner of Taxation, Dixon J held that the obligation of a guardian "to apply moneys in the maintenance of children or others does not involve the liability which arises from an ordinary trust". His Honour continued:
It is a general rule that guardians of infants, committees of the person of lunatics, and others who are entrusted with funds to be expended in the maintenance and support of persons under their care are not liable to account as trustees… Courts of equity have not disguised the fact that the general rule gives to a parent or guardian dispensing the fund an opportunity of gaining incidental benefits, but the nature and extent of the advantages permitted must depend peculiarly upon the intention ascribed to the instrument.
The treatment of the subject by Dixon J indicates that, consistently with the view taken by Scott and other learned writers, the relationship of guardian and ward is not that of trustee and beneficiary, but is a fiduciary relationship with peculiar characteristics.[7]
[7] [40].
There is no evidence that between 1991 and 1997 either party believed that there was a trust.
Was a trust created as a result of the negotiation in the Family Court proceedings
The plaintiff’s claim and the specific allegation in the Statement of Claim is that a trust was created at the time of Family Court negotiations in 1997.
The plaintiff’s position was affirmed during addresses when it was suggested to Mr Geyer, counsel for the plaintiff, that the plaintiff should make an election between a trust created in 1991 or a trust created in 1997 and he said:
...ultimately our case is based upon a trust that was constituted in November 1997 and what we say is that, in effect - and this emanates from the crucial letter that the defendant sent to my client which is found at p 1 of P1 - we say that as a result of that letter and as a result of the negotiations concerning the Family Court proceedings, we say, in effect, that the defendant, as settlor, declared him to be a trustee of Leigh’s property at the time of the property settlement.
We say that insofar as he took on sole responsibility for Leigh’s money, we say that the defendant, as settlor, declared himself to be the trustee of Leigh’s money at the time of the property settlement.[8]
[8] T188 l26 to 189 l9.
The short answer to the plaintiff's case is that by November 1997 the relationship between Leigh and the defendant was governed by an agreement signed by Leigh and the defendant on 6 October 1997 (Exhibit D8). Exhibit D8 did not make the defendant a trustee and if there had been a trust created in 1991 Exhibit D8 terminated the trust.
Page 1 of Exhibit P1, to which Mr Geyer referred, is the second page of a letter said to be from the defendant to the plaintiff in connection with the Family Court proceedings. The page was produced and relied upon by the plaintiff who said that she had kept the second page of the letter but not the first page. The provenance of the document was not challenged by the defendant. In the letter, which is unsigned, the defendant discussed various issues connected with the Family Court proceedings and made the following statement:
4. Looking forward to the Conciliation Conference, if it is to be meaningful, I believe we should establish the facts of Liabilities and Assets of the marriage at the time of separation. The general liabilities are well documented and support can be produced, but the grey area is dealing with Leigh's claim on us.
On the 18th June 1991 we received the sum of $20,000 as interim payment.
On the 6 September 1991 we received the balance of $4,281 making a total payment of $24,281.
If that sum were invested at 8% pa compounding for 6 years it would have grown to the amount of $34,443. I am not overly thrilled at all of this but I believe we should agree that our "loan" from him is now worth $34,000.[9]
[9] Exhibit P1 p 1.
The defendant did not in that letter declare himself to the trustee of Leigh’s property as claimed by Mr Geyer in his address. The document does not create a trust and it does not acknowledge the existence of a trust. At most it is a suggestion by the defendant to the plaintiff as to how the parties should deal with their joint liability to Leigh.
Exhibit P3 is an affidavit sworn by the defendant in the Family Court proceedings on 18 August 1997. The defendant said in the affidavit:
R. In 1991 there was a settlement of $25,000 on the claim we had lodged in 1983, in relation to the vehicle accident with our son. We used that money to help purchase a vacant block of land at 42 Olivedale Street, with the difference in cost being paid out of our joint funds. I acknowledge that this sum of $25,000 plus interest is owed to our son, by the wife and myself jointly. We commenced building the house on this land, by mortgaging the house we were living in, initially with a view to the new house being a rental property, but as plans began to solidify the wife demanded that if we build a new house we live in it….
In another paragraph of the same affidavit the defendant estimated his liabilities to include "Son's compensation claim $25,000. Interest on Son's compensation claim est. $9,000".
Those paragraphs in Exhibit P3 contain an acknowledgement of a debt owed to Leigh by the plaintiff and the defendant jointly, but neither paragraph acknowledges or creates a trust.
Exhibit D6, a Family Court Form 17A (Conciliation Conference Particulars) dated 28/11/1997 which was signed by the defendant sets out the assets and liabilities of the parties. The liabilities to be retained by the husband the document include "Son's loan of September 1991 $24,281. Interest on Son's loan $9,719." Exhibit D8 had already been executed at the time of the preparation of the Form 17A.
Exhibit D6 neither acknowledged nor created a trust.
Exhibit D7 is a letter dated 19 July 1998 from the plaintiff’s solicitor to the defendant in connection with the Family Court proceedings. That letter lists the assets and liabilities of the parties and refers to "Loan to son $24,281 Interest on loan $9,719" as liabilities. The letter made a proposal which was said to be "on the basis that (Leigh) is actually paid his entitlement in cash, or which he had requested". (sic) There was no suggestion of a trust.
Exhibit P5 is a collection of e-mail messages which passed between the parties at the end of October and early November 2008 which refer to the obligation to Leigh's estate. There are vague references to a "trust" for the purpose of identifying the rate of interest. The plaintiff asserted that by 2008 the loan with compound interest had grown to $89,840.14. None of the e-mail messages acknowledged the trust claimed by the plaintiff.
On 27 May 1999 a consent order was made by the Honourable Justice Murray in the Family Court which included the following provision:
k) That hereafter the husband be liable for and do indemnify the wife against any liability past, present or future with regard to the following:
i) The liability together with any interest accrued thereon owed by the parties to their son Leigh Krollig...[10]
[10] Exhibit P1 p 8.
The order did not acknowledge the existence of a trust.
I find that none of the documents in connection with the Family Court proceedings establish that a trust was created in about November 1997.
I find that no trust was created in about November 1997 as alleged by the plaintiff.
The allegation in para 8 of the Statement of Claim that the terms of a trust are recorded in the documents which are referred to is contrary to the evidence.
Agreement signed by defendant and Leigh on 6 October 1997
If the money was not subject to a trust was there a debt owing to Leigh?
In his written outline Mr Ower argued that it is doubtful on the evidence as to whether the payment of the money in 1991 to the plaintiff and the defendant would have created a legally enforceable debt owing to Leigh at that time.[11]
[11] Defendant’s Outline of Submissions para 25.
In 1997 Leigh was 20 or 21 years of age and was sui juris. Exhibit D8 is a Memorandum of Agreement signed by the defendant and Leigh on 6 October 1997. In his cross-examination of the defendant Mr Geyer challenged the provenance of the document. Mr Geyer suggested to the defendant that document had been prepared in 2008. The document purports to have been signed by Leigh. If counsel’s suggestion was correct then the signature of Leigh on a document which had not been prepared until 2008 must have been a forgery. Mr Geyer eventually withdrew that allegation. He then put to the defendant that rather than being prepared in 1997 Exhibit D8 was actually prepared after 1997 but prior to Leigh's death in November 2007. He suggested to the defendant that the document had been backdated. Mr Geyer suggested that the reason it was prepared was to seek to limit the defendant’s potential liability for Leigh's entitlement. The defendant strongly disputed that suggestion.[12] The defendant's evidence was that the agreement was signed on 6 October 1997.[13]
[12] T154.
[13] T152 to 154.
Exhibit D8 was prepared by the defendant's solicitor. The date 6 October 1997 has been inserted in the typed document by hand. The document was signed by the defendant and by Leigh. The defendant's signature was witnessed by the solicitor. Leigh's signature was witnessed by the solicitor's receptionist.[14] There is no irregularity on the face of the document and there is no evidence of any other irregularity.
[14] T127.
I accept the evidence of the defendant and find that Exhibit D8 was signed by the defendant and Leigh on 6 October 1997.
In the document Leigh is referred to as "the lender" and the defendant is referred to as "the borrower". The preamble to the document notes that the borrower "is indebted to the lender in the sum of $34,000 being a compensation payment of $25,000 paid to the borrower and his wife… for the benefit of the lender plus interest accrued thereon". The preamble also notes that the plaintiff and the defendant had separated and that the sum of $34,000 formed "part of the joint liabilities of borrower and the said Sharon Gayle Krollig which will be taken into account in calculating a property settlement between them". The final statement in the preamble to Exhibit D8 is "It is intended that on completion of the property settlement the borrower will take over full responsibility for the repayment of the said sum of $34,000 to the lender upon the terms and conditions set out hereunder. There is no reference in Exhibit D8 to a trust.

The operative provisions of Exhibit D8 state:
1.    The borrower acknowledges that the sum of $34,000 was received by him and the said Sharyn Gayle Krollig in or about the month of August 1990 for the benefit of the lender.
2.    The borrower further acknowledges that he is now solely responsible for the repayment of the said sum of $34,000 to the lender.
3.    The lender agrees to accept the said sum of $34,000 in full satisfaction of the indebtedness of the borrower and the said Sharyn Gayle Krollig to the lender.
4.    The lender further agrees not to demand payment of the said sum of $34,000 until the expiration of two years from the date of an order for settlement of property between the borrower and the said Sharyn Gayle Krollig is made by the Family Court of Australia.
5.    In consideration hereof the borrower hereby agrees to repay the sum of $34,000 free of interest upon the expiration of 3 months from the date of demand in writing being given by the lender to the borrower.
In his final address Mr Geyer accepted that Exhibit D8 was an agreement that appears to have been signed on 6 October 1997, but submitted that the real point is what is the legal effect of the document.[15] Mr Geyer submitted that Exhibit D8 was "ineffective as a matter of law in altering the legal characterisation of how those moneys were originally received". He also said "so we say that agreement is ineffective as a matter of law. It cannot, in my submission, have any effect on the trust that was constituted in November 1997".
[15] T198 l14.
That submission is on its face illogical and I reject it. Exhibit D8 had been signed before November 1997 when the plaintiff alleges that a trust was created. Also there is no evidence of any trust being constituted in November 1997.
The plaintiff does not claim that a trust had been created in 1991 when the money was received by the defendant and herself.
There is no reason why Exhibit D8 should not be treated as a valid agreement between the defendant and Leigh. On 6 October 1997 Leigh was sui juris and was capable of acting on his own behalf.
The plaintiff’s claim that a trust was created in November 1997 must be considered in the light of the fact that in November 1997 the rights of Leigh were determined by Exhibit D8.
The distinction between a trust and the debt is discussed in Jacobs’ Law of Trusts in Australia seventh edition, paragraph 213 in the following terms:
A debtor is not a trustee for the creditor since there is no identifiable fund which the latter is entitled to compel the former to apply for the creditors benefit. It may be difficult to tell whether a trust has been created or merely a debt incurred. The distinction is most important when any question arises of tracing the money into other property upon which it may have been spent. If there is only a debt, the creditor is limited to the common law remedy of action on that debt. If the money was paid on trust, the payor may trace the money into any other identifiable property which the payee may have purchased with it. The answer to the question whether a debt or trust was created in any particular case depends upon the intention of the parties. If the parties intended that the one receiving the money should hold that money for the benefit of the other or for the benefit of a third party, then it will be a trust because there is actual trust property. If the payee was entitled to use the money as his or her own, being under an obligation merely to repay the same amount of money at a future time, then the payer is merely a debtor. For example, if A agrees to pay to B a sum of money with the common intention that B shall invest the same during a period of a year, and that at the end of the year B should return the money to A together with a half share of any profits earned by the investment, it is not easy to say whether B held the money on trust or whether B should be regarded only as a debtor to A in that sum. Should B use the money for other purposes in purchasing property for himself, then, if there is a trust, A will be able to trace into the property so purchased. The question whether B in such a case is a trustee or a debtor cannot be answered except in the light of the actual expression used by the parties, and more particularly in the light of the nature of the transaction and the exact circumstances of the case.
The preamble to Exhibit D8 refers to a compensation payment of $25,000 paid "for the benefit" of Leigh. Paragraph 1 contains an acknowledgement by the defendant that the sum of $34,000 was received by him and the defendant "for the benefit of" Leigh. Notwithstanding the use of the words "for the benefit" in Exhibit D8 there is no evidence which establishes that a trust was created at the time the cheques were paid. The agreement was prepared six years after the payments were made. There is no document contemporaneous with the receipt of the money in 1991 which creates an express trust. There is no evidence that any conditions were attached to the payments and there was nothing which prevented the plaintiff and the defendant from treating the moneys as their own. In fact that is what they did when they purchased the block of land. Why the person who drafted Exhibit D8 used the expression "for the benefit of" is not known. It would be a mistake to attach too much significance to the use of the words "for the benefit of" in Exhibit D8.
In his final address Mr Geyer said:
So it's quite clear that the defendant has come to court to face a case where we've made it abundantly clear that the original moneys were received for and on behalf of Leigh back in 1991 and that in November 1997, it was agreed that the defendant would assume responsibility for the trust, and this is in subpara 7.6 of the Statement of Claim,… It's quite clear the basis upon which the plaintiff has proceeded.[16]
[16] T186 l14.
If the moneys had been subject to a trust from 1991 that trust would have been terminated by Exhibit D8. Neither party asserts that a trust was created in 1991. If such an assertion was made the rule in Saunders v Vautier[17] would apply. The rule is described in Dal Pont and Chalmers, Equity and Trusts in Australia, fourth edition, in the following terms:
[25.140] The beneficiaries of a trust may, if they all consent and are of full capacity, terminate the trust by requesting the trustees to pay over their respective interests under the trust, thereby extinguishing it. This is known as the rule in Saunders v Vautier, which has been expressed as follows:
The [rule] recognizes the rights of beneficiaries, who are sui juris and together absolutely entitled to the trust property, to exercise their proprietary rights to overbear and defeat the intention of the testator or settlor to subject property to the continuing trust, powers and limitations of a will or trust instrument.[18]
[17] (1841) Cr & Ph 240; (1841) 41 ER 482.
[18] p 656.
On 6 October 1997, by Exhibit D8, Leigh accepted the promise of payment by the defendant of the original fund plus about $9,000 by way of interest in substitution for whatever rights Leigh may have previously had. If there was a trust it was extinguished by Exhibit D8. So was any obligation to pay future interest.
I find that the entitlement of the estate of Adrian Norman Krollig against the defendant is determined by Exhibit D8. I find that Exhibit D8 created an obligation on the part of the defendant to pay $34,000 to Leigh. That finding gives rise to a curious situation in this action because the plaintiff does not rely upon Exhibit D8 and Mr Geyer specifically and vigorously disavowed the document.
Would a claim based on Exhibit D8 be statute barred
Mr Ower argued that a claim based on Exhibit D8 would be statute barred.
Section 35 of the Limitation of Actions Act provides that actions founded upon any simple contract must "be commenced within six years next after the cause of action accrued and not after".
The defendant was not required, either by the pleadings or by the case presented by the plaintiff, to respond to a claim based upon Exhibit D8.
Paragraph 10.4.4 of the Defence pleads laches in response to the trust claim. Paragraph 10.4 .5 asserts that the plaintiff in her capacity as the administrator of the estate has grossly delayed the prosecution of any claim on behalf of the estate arising out of a breach of trust in or about 1991. The defence of laches is an equitable defence which does not apply to a claim for money payable pursuant to Exhibit D8. There is no plea which raises the Limitation of Actions Act 1936, although that is understandable given the absence of any claim in contract. However in their final addresses counsel did make submissions as to whether a claim pursuant to Exhibit D8 would be statute barred.
The defendant’s submission is that Exhibit D8 can be characterised either as an initial agreement as to a debt or an acknowledgement of an existing debt. An acknowledgement would have the effect of restarting the period of limitation from the date of the acknowledgement. Mr Ower argued that the six-year time period would commence to run from the end of the three-month period referred to in clause 5 of Exhibit D8 so that any action in relation to the debt needed to be brought by January 2004.
Mr Geyer argued that time ran from when the cause of action accrued. He relied upon Halsbury’s Laws of England, fourth edition, volume 28, page 447 for the proposition that a cause of action accrues when the obligation should have been performed. He argued that, if I was to find that Exhibit D8 was a loan agreement, the cause of action did not accrue until the expiration of three months from the date of a demand in writing. He argued that an e-mail dated 2 November 2008 was a demand which triggered the three month period. He submitted that a claim would not be statute barred.
The Family Court order for settlement of property was made on 27 May 1999. Accordingly the time when the lender could demand payment of $34,000, pursuant to clause 4 of Exhibit D8, did not arise until two years later on 27 May 2001.[19] The obligation in para 5 of Exhibit D8 is to repay "the said sum of $34,000 free of interest upon the expiration of three months from the date of demand in writing being given by the lender to the borrower".
[19] Exhibit D8 para 4.
Questions which arise are when did the cause of action accrue; was a demand necessary; has a demand been made?
There are many cases which establish that in the case of a loan repayable on demand no demand is necessary to found a cause of action for repayment and that the cause of action for the recovery of the money arises at once upon the making of the loan. In Young v Queensland Trustees Ltd (1956) 99 CLR 560 Dixon CJ McKiernan and Taylor J said at 566 "A loan of money payable on request creates an immediate debt".
In Ogilvie v Adams [1981] VR 1041 Fullagar J said:
The common law has always regarded the fact of indebtedness as a continuing detention by the debtor of the creditor’s money, and this whether the creditor brought an action of debt or an action indebitatus 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...
Fullagar J also said (at 1049):
There is a long settled rule of construction that, where there is a present debt between the parties to a contract to repay money, and the only terms as to repayment of the debt are to be spelled out of a promise to repay on demand, or out of a statement that the money is to be repaid or repayable on demand (or on request), an instantaneous cause of action, upon the very creation of the contract, arises in the lender. Whether one calls it a rule of law or not does not seem to me to matter. The only reason why I have chosen the expression "rule of construction" is because other words or terms may appear in the contract which may be in the circumstances sufficient to show an intention that the cause of action is not to arise until some actual demand or some form of demand is made or until some period after demand has elapsed: see for example Murphy v Lawrence, [1960] NZLR 772. But it is equally correct to say that, where such "other words" or terms do not appear, it is settled law that a loan (for example) which is simply described as being repayable on demand or on request or at call creates a cause of action in the lender enabling him to recover the money instantaneously upon the loan being made, and without any demand being made at all. What the critical words mean, generally, is a rule of construction, and therefore presumptive only; what the words mean in a written document recording the terms of a loan, when standing alone, is a clear rule of law... (my underlining)
The question was considered by the Full Court in this State in Re Brookers (Aust) Ltd (in liq); Brooker v Pridham (1986) 41 SASR 380. King CJ had regard to the relationship of the parties, the course of conduct in relation to the accounts in question and a common assumption that the money in question would be available for use by the company as working capital in order to imply a term into the relevant arrangement that liability to repay the money in question did not arise until notice was given. His Honour held that there was no immediate liability to repay and no right of action.
Olsson J said:
If a loan is not to be treated as being of that species which is continuously recoverable at all times, then there must be a basis for asserting that the arrangements between the parties were contrary to such a legal situation e.g. because of the imposition of qualifications as to specific notice of mode of withdrawal or the requirement for some additional act or event before an action could be brought. Alternatively, some other feature of the arrangements between the parties may clearly negative the operation of the normal rule.
In the present case clause 4 of Exhibit D8 provides that payment could not be demanded until the expiration of two years from the date of a Family Court order. This is not a case where the money was payable immediately. The Family Court order is dated 27 May 1999 and payment could not have been demanded until 27 May 2001.
It is also necessary to consider clause 5 of Exhibit D8 which determines when the borrower's obligation to repay the $34,000 arises. By that clause the obligation to pay the money does not arise until three months from the date of a demand in writing.
In Gray v O'Donnell [2009] NSWSC 259 Rothman J had to consider when a time limit commenced to run. A contract provided that the loan in question was "payable on demand in writing". His Honour said:
Thus, the courts have long distinguished between a debt "payable on demand" and a debt which arises from a loan which is payable only on the satisfaction of a condition of some kind, including the satisfaction of a condition that a demand is actually made. It will very much depend upon the terms of the contract; see Re Brown's Estate [1893] 2Ch 300 at 304-305; D & J Fowler (Aust) Ltd v Bank of New South Wales [1982] 2 NSWLR 879 at 882-883, 886 (per Helsham CJ in Eq); Murphy v Lawrence ([1960] NZLR 772 at 774‑775.[20]
[20] [18].
His Honour said that it was necessary to determine the intention of the parties as evidenced by the terms of the contract.[21] He said:
In the contracts that must here be construed, the amounts are payable not "on demand" simpliciter, but "on demand in writing". Further, that demand may be served in accordance with s 170 of the Conveyancing Act. No issue arises as to the service, but the requirement that the demand be made "in writing" and be served in a particular manner, makes clear that the moneys advanced were not payable immediately, but payable only if and when a demand was made in writing. The question can be asked and answered by contemplating whether, on the face of the proper construction of this contract, the parties would consider that the amount was repayable without there ever having been a demand in writing for it. The answer, in my opinion, must be that they would not. The requirement for a demand to be made "in writing" was a condition precedent to the obligation to repay the amount. In other words, the obligation to repay was conditioned upon the service on the borrowers of a demand in writing for the moneys.[22]
[21] [22].
[22] [23].
This is not a case where there was an immediate obligation to pay the money. Exhibit D8 is a contract which contains words which show an intention that the cause of action does not arise until three months have elapsed after a demand in writing. Having regard to the date of the Family Court order together with the requirement for three months notice the earliest time when the $34,000 could have been repayable was 27 August 1999. However a demand in writing is required before time starts to run.
There is no suggestion of any demand having been made prior to November 2008. Accordingly, if as Mr Geyer submitted there was a demand in November 2008, the cause of action could not have accrued until three months after the demand, that is February 2009. The six-year period from February 2009 has obviously not yet expired.
Whether a relevant demand has actually been made is a matter upon which I need to hear from counsel. The e-mail messages which were relied upon by Mr Geyer were not a demand for repayment of $34,000 pursuant to Exhibit D8 but were a request for payment of a much larger sum alleged to be due by the defendant as trustee. The e-mail messages were unrelated to Exhibit D8.
If a demand in writing which satisfies condition 5 of Exhibit D8 has not yet been made the debt is not yet due and at the present time the defendant as borrower has no current obligation to make any payment to the estate of Leigh pursuant to Exhibit D8. An obligation to make payment might be created by service of an appropriate demand.
I find that a claim for $34,000 pursuant to Exhibit D8 would not be barred at the present time. However the plaintiff has not made such a claim.
Conclusion
The plaintiff's claim in the Statement of Claim must be dismissed. The plaintiff is not entitled to any of the declarations sought in paras 1, 2 and 3 of the orders sought. The claim in para 4 for judgment in the sum calculated pursuant to the alleged trust and the claim for interest thereon at 8% should also be dismissed.
On my interpretation of Exhibit D8 there is no entitlement to interest on the debt of $34,000 from 6 October 1997 (the date of Exhibit D8) at least until any default is made by the defendant in repayment. Whether interest is payable from the date of any default or whether clause 3 of Exhibit D8 limits the defendant's liability to $34,000 notwithstanding default in payment are questions on which I need to hear submissions from counsel.
Whether judgment should be entered for $34,000 pursuant to Exhibit D8 is a matter upon which I would like to hear submissions from counsel.