Kormendi v Hunter

[2003] NSWSC 87

CITATION:	Kormendi v Hunter [2003] NSWSC 87
HEARING DATE(S):	12/02/03
JUDGMENT DATE:	28 February 2003
JURISDICTION:	Common Law Division
JUDGMENT OF:	Kirby J
DECISION:	Orders - para 37
CATCHWORDS:	Appeal from Local Court in civil claim - error of law - no evidence submission - Limitation Act - contract claim - agreements to extend time - when did cause of action accrue - when was breach - waiver
LEGISLATION CITED:	Justices Act 1902 Local Courts (Civil Claims) Act 1970 Limitation Act 1969
CASES CITED:	Australian Gaslight Co v Valuer-General (1940) 40 SR (NSW) 126 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 R v District Court: Ex Parte White (1966) 116 CLR 644 Mahoney v Industrial Registrar of NSW & Anor (1986) 8 NSWLR 1 Transoceanic Petroleum Carriers v Cook Industries Inc; The Mary Lou [1981] 2 Lloyds Rep 272 Unitramp v Garnac Grain Co Incorporated; The Hermine [1978] 2 Lloyds Rep 37 Foakes v Beer (1884) 9 App Cas 605 Standard Chartered Bank of Australia Ltd v Antico & Ors (1995) 38 NSWLR 290
PARTIES :	Eva Kormendi (Pl/App) Johanna Hunter (Def/Resp)
FILE NUMBER(S):	SC 10078/02
COUNSEL:	M Thangaraj (Pl/App) M G O'Brien (Def/Resp)
SOLICITORS:	Lyons & Lyons (Pl/App) Peter Reiner & Associates (Def/Resp)

LOWER COURTJURISDICTION:	Local Court
LOWER COURT FILE NUMBER(S):	3314/99
LOWER COURT JUDICIAL OFFICER :	J E Garbett LCM

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

David Kirby J

Friday 28 February 2003

10078/02 - EVA KORMENDI v JOHANNA HUNTER

JUDGMENT

1 KIRKBY J: This is an appeal against a judgment by Mr Garbett, Local Court Magistrate. Mr Garbett, over a number of days, heard an action by Mrs Johanna Hunter (plaintiff in the Lower Court) against Mrs Eva Kormendi (defendant). On 21 December 2001, he gave judgment in favour of Mrs Hunter in the sum of $20,000 plus costs. The appeal is against that judgment.

The Competing Claims

2 Mrs Hunter and Mrs Kormendi were friends. They met in about 1989. From time to time they played Bridge. They also occasionally had dinner together and attended the Opera.

3 Mrs Hunter had a parcel of money, as a consequence of a road accident. The money was on deposit at a bank. It was a time of high interest rates. According to Mrs Hunter, her friend Mrs Kormendi represented that she could obtain a more handsome return. Mrs Kormendi planned to purchase furniture in Europe for resale in Australia. In the course of their dealings there was, according to Mrs Hunter, also discussion concerning the importation by Mrs Kormendi of a luxury motor vehicle for resale in Australia.

4 Mrs Hunter asserted that in 1990 she entered three distinct transactions with Mrs Kormendi, each involving an advance of money. The first was a profit sharing arrangement for the purchase and resale of furniture. The second was a loan. The third involved the purchase and sale of a ring valued at $4,000.

5 The first and third of these matters were dealt with by the learned Magistrate in the course of argument. They are not the subject of appeal. The appeal concerns only the second transaction, the loan. The Statement of Claim was originally expressed in these terms:

"8. Further and in the alternative the plaintiff agreed to loan the defendant the said sum of $32,000 provided the same was repaid to the plaintiff on or about 30 January, 1991.
9. The said sum of $32,000 was advanced to the defendant by the plaintiff at about the time it was requested in 1990.
10. On or about the 30 January, 1991 the defendant informed the plaintiff that she was unable to repay the loan until after the furniture had been sold and the plaintiff agreed not to then demand the return of the said sum of $32,000 until the sale of the furniture or until she demanded the return of the same whichever first occurred."

6 Each party provided a statement which was tendered, and formed part of the evidence in chief of that party. The statement of Mrs Hunter included the following:

"At or about the same time the defendant approached me and asked for a loan of $32,000. Although I was aware that this money was to be used by her to purchase furniture in Europe, this request had nothing to do with the 'furniture' venture and was a straight forward request for a loan from me, to be repaid by the 30th January 1991. As I then had no doubts about the defendant's honesty and integrity I gave her the money on the strength of a simple IOU written on a piece of paper."

7 The IOU was a typewritten document signed by Mrs Kormendi in these terms:

I OWE YOU

I Eva Kormondy [sic] received and agree to re-pay $32,000 (thirty-two thousand dollars) to Johanna Hunter by 30th January 1991.

8 The arrangement, as it emerged in evidence, was, however, somewhat different. The advance to Mrs Kormendi was in fact $20,000. The balance represented interest ($12,000). The plaintiff, late in the hearing, sought to amend the Statement of Claim to reflect an agreement in those terms. His Worship then dealt with the claim as one for $20,000.

9 Mrs Kormendi gave a completely different account. She denied having solicited or received a loan from Mrs Hunter. She said the arrangement between them, from first to last, was a partnership for the purchase and resale of furniture. By mid 1992, all furniture had been sold. Mrs Hunter had been paid her share of the return. Nothing was outstanding. Mrs Kormendi also said that she had not appreciated the nature of the IOU document that she had been asked to sign. It had been represented to her by Mrs Hunter as a Partnership Agreement. She did not read the document. Her English is limited. She assumed it related to their furniture dealings. When she discovered that evening the true nature of the document, she asked Mrs Hunter to destroy it. Mrs Hunter agreed that she would do so. Mrs Kormendi called her daughter in law, Mrs Goldberger, as a witness. Mrs Goldberger gave evidence that Mrs Hunter acknowledged in her presence that she had destroyed the document.

10 The learned Magistrate preferred the account of Mrs Hunter. He specifically rejected the evidence of Mrs Goldberger. He said this: (T.70 (21.12.01))

"On the balance of probabilities I am satisfied that there was a loan of $20,000. That seems to me to be the only reasonable explanation of those pieces of evidence that I referred to, the document the IOU, the evidence regarding the loan payment where the money came from and the reasons for it, the reasons for it seem to me to be supportable."

Error of Law

11 Section 104(5) of the Justices Act 1902, provides that a party to civil proceedings in the Local Court may appeal to the Supreme Court as provided by s69 of the Local Courts (Civil Claims) Act 1970. That Act, with certain exceptions which are not relevant, provides that a party may appeal where the judgment or order of the Court is "erroneous in point of law" (s69(2)).

12 In Australian Gaslight Co v Valuer-General (1940) 40 SR (NSW) 126, Jordan CJ considered the nature of an error of law. He distilled from the authorities a number of propositions. Relevantly, he said this (omitting references): (at 138)

"(3) A finding of fact by a tribunal of fact cannot be disturbed if the facts inferred by the tribunal, upon which the finding is based, are capable of supporting its finding, and there is evidence capable of supporting its inferences.
(4) Such a finding can be disturbed only (a) if there is no evidence to support its inferences, or (b) if the facts inferred by it and supported by evidence are incapable of justifying the finding of fact based upon those inferences, or (c) if it has misdirected itself in law."

13 The issue has been considered in a number of cases since that time (see especially Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139). A number of broad propositions can be stated:

· First, there is no error of law in simply making a wrong finding of fact (Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321, per Mason CJ at 341), unless there is no evidence to support that finding.

· Secondly, it does not amount to an error of law if the finding of fact, or the inference (or the refusal to make a finding of fact or draw an inference) is perverse, in the sense that it is contrary to the overwhelming weight of evidence (Glass JA in Azzopardi v Tasman UEB Industries Ltd (supra) at 155-156).

· Thirdly, it is not an error of law even if the reasoning process by which the Court reaches its conclusion of fact is demonstrably unsound or illogical (Menzies J in R v District Court: Ex Parte White (1966) 116 CLR 644, at 654).

· Fourthly, there is limited exception (which has no application in this case) in relation to decisions of fact in the context of a statutory description. In such a case there may be an error of law if the decision on the facts is one which could not be reasonably entertained, or supported, if the tribunal had properly understood the true construction of the relevant enactment (Mahoney v Industrial Registrar of NSW & Anor (1986) 8 NSWLR 1, per Hope JA at 3 and Samuels JA at 5).

The Appellant's Contention

14 Counsel for Mrs Kormendi acknowledged that it was plainly open to the learned Magistrate to prefer the evidence of Mrs Hunter, and to find that there was a loan. It was suggested, nonetheless, that the Magistrate had erred in law in certain findings made in support of his conclusion that the action was not statute barred under the Limitation Act 1969 ("the Act"). Mrs Hunter's claim was in contract. The Act provides the following limitation in respect of such a claim:

" 14 General
(1) An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims:
(a) a cause of action founded on contract (including quasi contract) not being a cause of action founded on a deed."

15 Here the money was advanced in mid 1990. It was, according to the defendant, repayable by the terms of the IOU, on 30 January 1991, or, at the latest in September 1991. Mrs Kormendi was therefore in breach by 30 September 1991, if not before. The cause of action, therefore, was statute barred, on the defendant's argument, by September 1997. The Statement of Liquidated Claim had not been issued until 26 March 1999. In these circumstances, the learned Magistrate was wrong, according to the defendant, to attach significance to a formal demand sent by Mrs Hunter in January 1996. That letter demanded the repayment of monies outstanding, including the loan which is the subject of this action. It concluded with these words:

"Repayment of the debt is long overdue and I am not prepared to wait any longer. Please pay me the above sum by the 27th January 1996."

16 Mrs Hunter added:

"Should you not pay me as requested, or, if you are unable to pay by the deadline the full amount then please phone my Solicitor Peter Reyner (Tel: [phone]) before the above date. Should you fail to respond he has been instructed to start proceedings to recover from you the above amount."

17 The Defence filed on behalf of Mrs Kormendi in the Local Court specifically pleaded that the claim was statute barred under the Limitation Act. Counsel for Mrs Kormendi made a No Case submission at the end of the evidence. The submission did not succeed. The agreement between the parties was, in the Magistrate's words, "wishy-washy", and it was not clear when the breach occurred. In the judgment ultimately given, once the case had run its course, the learned Magistrate said this, in the context of the limitation defence: (T.71 (21.12.01))

"There's the issue raised of the Limitation Act and this was raised at prima facie and now firmly put before the Court on the basis that there is clear evidence that the Limitation Act applies and of course it does but it applies it is said to block this loan. Although I rejected that at prima facie I considered it more and listening to all the parties and I am still of that view. I am still of that view for this reason, the Act dates from when the cause of action accrues. The cause of action accrues when there is a default. The repayment provided initially for a document which fixed a date, that is 30 January 1991. There is some evidence that that was extended. The evidence I accept becomes blurred and the plaintiff gave certain further evidence today which indicated demands had been made and I have no doubt that requests for repayment were made from time to time. But it was not the situation where formal demand and formal default had taken place."

18 His Worship added:

"In this situation here were two friends where money was owing, request was made, extensions were given and there was that loose set up of request for extension and extensions given right up until the formal demand was made which was made in - certainly within - or outside the limitation period in any event and when that formal demand was made and there was no repayment there was a formal default and the Limitation Act certainly started to apply then. But I still make the same decision as I did at prima facie, the action is not blocked by the Limitation Act."

19 It was said on behalf of Mrs Kormendi that there was no evidence that, after September 1991, there had been an extension granted by Mrs Hunter to Mrs Kormendi. It was therefore not open to the learned Magistrate to find that the breach had occurred in January 1996, when Mrs Kormendi failed to comply with Mrs Hunter's formal letter of demand. It was said that the absence of evidence to support that critical finding amounts to an error of law.

The Evidence

20 The only evidence relevant to this issue was given by Mrs Hunter. Mrs Kormendi, it will be remembered, simply denied that there had been a loan. According to her testimony, there had been no discussions on the subject of extending time.

21 The statement of Mrs Hunter, which became part of her evidence in chief, included the following:

"Having heard nothing from the defendant for some time I contacted her in late 1990 or early 1991. She requested a meeting which took place on 30th January 1991. At the meeting she told me that she was in severe temporary financial difficulties but that she expected to make a great deal of money in the near future from one or more of her several business ventures and requested an extension of the deadline for the repayment of the loan. As I still trusted her I agreed to an extension, initially with the condition that a new deadline be agreed on. However when she convinced me that it was impossible for her to give a definite date for repayment, I naively agreed to an indefinite postponement of the date with the proviso that the money is to be repayable on demand. She agreed to this proposal."

22 Her statement continued:

"The defendant did not contact me for several months following this meeting and I became increasingly anxious to ascertain the progress of the furniture venture and requested information from her when I eventually managed to speak to her on the telephone. On this occasion and several subsequent occasions she 'fobbed' me off with excuses and tales about potential buyers interested in buying the furniture and various difficulties ..."

23 She added:

"She also repeated her story about the financial problems she was having and informed me that she was still not in a position to repay the loan."

24 Mrs Hunter was cross examined at some length. The cross examination included the following: (T.16 (14.8.01))

"Q. So the only change was in January 1991 when it was going to be repaid either on demand or when the goods were sold, whichever came first?
A. I still understood that the original date was the original date of repayment and I gave Eva time to extend it as needed in a reasonable limit."

25 Elsewhere Mrs Hunter said this: (T.30 (14.8.01))

"A. As I said we never had set meetings because we have had outings. She was a friend and I can't even definitely divide meeting and because the business came up time to time and she told me ..."

26 In re-examination the following was asked: (T.13 (21.12.01))

"Q. Mrs Hunter you were asked questions about the demands you made on Mrs Kormendi to return the money to you, okay. Now I think in your statement you say that there were a meeting in January 1991, is that correct?
A. Yes.
Q. What exactly did she say to you regarding the repayment of the money at that stage?
A. She was saying that I was (in) trouble because the car was in a container and there was a strike and so therefore she needs more time, she can't deliver out of her own fault, she just simply cannot.
Q. What did you say to her?
A. And I said, okay that's alright, we can you know extend it but I need the money. So she said there's nothing she could do about it.
Q. Was there a specific time on which you agreed as the next deadline for the return of the money?
A. No. I believed it, I really honestly believed it, I can't help it, sorry I'm probably ..."

27 The defendant was then called to provide her version. In the course of her evidence her copy of the IOU was produced. It contained annotations in the handwriting of Mrs Hunter. The annotations were as follows:

"Two Thousand Five Hundred Dollars Cash received by me on 1.5.1991.
Johanna Hunter (signed)
The rest was reinvested and will be payable in September 1991.
J Hunter (signed)
1.5.1991"

28 Mrs Hunter was recalled in order to deal with the discussions in May 1991. In further cross examination she said this: (T.43 (21.12.01)

"Q. So on 1 May 1991 you received $2,500 with an agreement that the rest would be payable in September 1991, that's what's written there?
A. Yes.
Q. And that relates to the amount of money that is relating to this IOU document?
A. Yes."

29 In further re-examination, the following evidence was given: (T.44 (21.12.01)

"Q. Listen to the question carefully please, has there been any communication between yourself and the defendant between 1 May and that date in September regarding the repayment of the money?
A. What do you mean the date in September, what ...
Q. There's a date in September shown on that document, can you see it?
A. No. Oh, oh, right. Well I said to her that she can have some more time, I extended ..."

30 The re-examination concluded with the following question and answer: (T.44 (21.12.01))

"Q When she said words to the effect that she needs more time what ...
A. And I said yes okay, let's make it September 91. And when it didn't happen then I kept asking when will we get this car out and there were excuses after excuses and eventually I put it to writing some years later and even then I gave her time in the last paragraph saying, if you can't pay up let us know. But I got no answer ..." (emphasis added)

31 The picture which emerges is not entirely clear, as the learned Magistrate remarked. However, there was evidence before the Magistrate of periodic meetings, of discussions, of reminders by Mrs Hunter, of excuses by Mrs Kormendi, and extensions on deadlines which had passed. It was said by counsel for Mrs Kormendi that, following the discussion in May 1991, when a new date for repayment was set (September 1991), there were no further extensions. However, that is not the impression which I get (and which the learned Magistrate got) reading the evidence fairly, and as a whole. I believe that there was evidence upon which the learned Magistrate could come to the view on the facts which he did.

32 The more troubling question concerns the timing of the breach of contract. When did the breach occur? The cause of action accrued (and time began to run under the Limitation Act 1969) from that date. Ordinarily, the date of the breach would be a question of fact, and not amenable to review (Transoceanic Petroleum Carriers v Cook Industries Inc; The Mary Lou [1981] 2 Lloyds Rep 272; Unitramp v Garnac Grain Co Incorporated; The Hermine [1978] 2 Lloyds Rep 37). The terms of the loan agreement were not identified as such by his Worship. The written document, the "I Owe You", is not an accurate record of the agreement that had been made. Only $20,000 had been advanced, not $32,000. Nonetheless, the written document nominated 30 January 1991 as the date of repayment. Did breach occur at that point?

33 The answer to that question rather depends upon the status of the agreement or agreements to extend time. Mrs Kormendi was obliged to repay the loan advanced. There was no consideration for "the agreement" by Mrs Hunter to extend time (Foakes v Beer (1884) 9 App Cas 605). The contract was therefore not varied. However, that does not mean there was a breach. The parties clearly came together. Mrs Hunter obviously would have liked her money, and said so. Mrs Kormendi, however, for reasons which she gave, was not in a position to perform her obligations at that time. Mrs Hunter, in these circumstances, no doubt for reasons of friendship, chose not to insist upon performance. Mrs Hunter elected to waive her right to terminate for breach. The principle is expressed in the most recent edition of Carter & Harland ("Contract Law in Australia", 4th ed, 2002) in these words: (para 391)

"Assume that one party to a contract (the promisee) is entitled to terminate the contract for the promisor's breach of contract. The law does not require that the promisee terminate; the promisee may prefer to 'affirm' the obligation to perform the contract, and actually perform or call on the promisor to perform. But termination and affirmation are mutually inconsistent rights and the exercise of one is necessarily a rejection of the other."

34 Here Mrs Kormendi was in default. Mrs Hunter elected not to regard the default as a breach of their agreement (no doubt an indulgence extended to a friend; cf Standard Chartered Bank of Australia Ltd v Antico and Ors (1995) 28 NSWLR 290) and, instead, affirmed the contract, granting an extension of time (and other extensions later).

35 The fact that rights are waived (and extensions agreed to), does not mean that Mrs Hunter could not rely on a later default. Mrs Hunter had the right to insist upon performance at a later time, allowing Mrs Kormendi a reasonable time within which to repay the debt (Carter & Harland (supra) para 1962). This she did when she sent the formal letter of demand in January 1996. Mrs Kormendi failed to respond. On that occasion, Mrs Hunter chose to regard that failure as a breach, as she threatened in her letter. Time, for the purposes of s14(1)(a) of the Limitation Act, began to run. The Statement of Claim was then issued within the six year period provided by the Act. It was therefore within time.

36 No error of law has been demonstrated by the appellant (subject to one matter). It does, however, appear from the annotations on the IOU that Mrs Kormendi did repay $2,500 of the debt. That sum should have been deducted from the amount which was repayable.

Order

37 I therefore make the following orders:

1. The appeal is allowed to the extent that $2,500 should be subtracted from the judgment debt so that there should be judgment for Mrs Hunter in the sum of $17,500.

2. The appeal is otherwise dismissed.

3. The appellant, Mrs Kormendi, should pay Mrs Hunter's costs.

**********

Last Modified: 03/03/2003