McKechnie v Gameson - [2000] NTSC 39

McKechnie v Gameson [2000] NTSC 39
PARTIES:McKECHNIE, Robert Lachlan
v

GAMESON, Anthony McDougal

And

GAMESON, Susan

TITLE OF COURT:  SUPREME COURT OF THE NORTHERN TERRITORY
JURISDICTION:  SUPREME COURT OF THE NORTHERN TERRITORY EXERCISING TERRITORY JURISDICTION
FILE NO:16 of 1991
DELIVERED:  9 June 2000
HEARING DATES:  21, 22 & 23 March 2000, 5 April 2000, 5 May 2000
JUDGMENT OF:  MARTIN CJ
CATCHWORDS:

MONEY
Monies lent – whether personal loan – whether loan to agents of a company
LIMITATION OF ACTIONS
General – whether to grant extension of time to institute the action
Limitation Act 1981 (NT), s 44(3)(b)(I)&(ii)
Sola Optical v Mills (1987) 163 CLR 636
Young v Queensland Trustees (1956) 99 CLR 560
REPRESENTATION:
Counsel:
Plaintiff:J Waters QC
Defendant:J McCormack
Solicitors:
Plaintiff:Hunt and Hunt
Defendant:J McCormack, Barrister & Solicitor
Judgment category classification:    B
Judgment ID Number:  mar20011
Number of pages:  23

Mar20011
IN THE SUPREME COURT
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWIN
McKechnie v Gameson [2000] NTSC
No. 16 of 1991

BETWEEN:
ROBERT LACHLAN McKECHNIE

Plaintiff
AND:
ANTHONY McDOUGAL GAMESON

Defendant
AND:
SUSAN GAMESON
Second Defendant

CORAM: MARTIN CJ
REASONS FOR JUDGMENT
(Delivered 9 June 2000)

For reasons which become apparent from a few examples, I do not find either the plaintiff or the first defendant to be wholly reliable as witnesses. That is partly due to the fact that the transactions at the heart of the dispute occurred about 13 years ago and were largely unrecorded, memories have dimmed or been distorted by subsequent events, and gaps in recollection have been filled by reconstruction. The absence of documents has allowed both men significant latitude to tell a story in the expectation of persuading the court to the version of events most favourable to his position. Neither has fully succeeded. There are, however, some documents which assist me in coming to my conclusions, and the absence of some other documents is also important in that regard.

The plaintiff claims from the defendants $50,500 being “outstanding principal” (the total advances being $51,000) repayable at a rate of $500 per week, together with interest at the rate of 12% to be paid quarterly. The defendants say that the money was not advanced by way of loan to them personally, but in their capacity as agents for a company, Graceful Pty Ltd. They say that there was no agreement to pay interest, and that in any event Mrs Gameson was not a party to the transaction whatever form it took.
Prior to the events giving rise to these proceedings, the Maranga Hotel in Darwin was owned by Graceful Pty Ltd and its business managed by the first defendant on its behalf. The second defendant worked in the hotel. The plaintiff was a patron. The plaintiff and first defendant became friends.
According to the plaintiff, the first defendant approached him in late 1986 for a loan to purchase the stock of the hotel business, he was told by the first defendant that he intended to lease the hotel and had an option to purchase it; he would give the plaintiff a third share if the money was advanced. The plaintiff assessed for himself that the hotel was a sound business proposition. He said the first defendant had estimated that the amount required be in the order of $30,000 to $40,000, and according to him the first defendant said: “I’ll give you $500 a week off the debt and a third of the pub when I get it”. No mention was made of any company. The plaintiff thought that the defendants would manage the hotel business and that he would be a silent partner. Throughout his evidence he insisted that he was told by the first defendant that he intended to lease the hotel. There is evidence by way of a letter from the solicitors for Graceful Pty Ltd to the solicitors for the first defendant that it was intended that he occupy the hotel as tenant commencing on 3 November 1986 pending completion of the sale and purchase of the shares in Graceful Pty Ltd. As between the two men there was no detail as to just what was intended in relation to the plaintiff having “a third of the pub”.
On the date the lease was to commence the plaintiff handed to the first defendant two cheques, one for $8,000 and the other for $12,000 each drawn on bank accounts standing in the name of the plaintiff and another person. One such person was his sister and the other a friend.
Evidence of each such payment comprises a simple document signed by the first defendant, “IOU $8,000 3-11-86” and “IOU $12,000 3-11-86”. They were written on the reverse side of bank statements relating to the accounts upon which each cheque was drawn. Nothing else appears in either IOU. On the face of it, the first defendant acknowledges a simple debt of $20,000.
The plaintiff says that later that month he won about $6,666 on a trifecta wager on the Melbourne Cup. The first defendant, he said, laid the bet for him, and after the win, collected the winnings and the plaintiff asked if he could keep $5,000 for hotel stock. There is no IOU or any other documentary evidence for that. The plaintiff could recall no details of the wager, except the amount won, nor the names of any of the horses which produced the winning result. He said he had agreed to the first defendant retaining the $5,000 for the purpose he put forward. The first defendant denies that anything like that occurred.
The next advance was said to have been made just after Christmas 1986, when the plaintiff says that the first defendant asked him for a further $20,000 to pay “liquor tax”. The plaintiff says that the second defendant was present and said: “We need the money – we’ve got to pay the tax”. According to the plaintiff, it was then confirmed that he would get a one third share in the hotel and repayment of the monies advanced at $500 per week. Both defendants deny that there was any discussion about liquor tax.
The plaintiff said he went to his bank and removed two envelopes, each containing $10,000 in cash which he had held in a safe deposit box. He said that upon return to the hotel, the cash was counted by the first defendant in the presence of the second defendant and a hotel employee. The plaintiff says that on that occasion the first defendant signed a further IOU. The first defendant says the cash amounted to $18,000 and he signed two IOUs.
The only IOU in evidence is dated 12 January 1987 and on the face of it is for the sum of $40,000 “cash advance”. It is signed by the first defendant and bears the signature of a witness, Ms Vituskis, the hotel employee.
The plaintiff’s evidence about the compilation of the sum of $40,000 is quite difficult to follow. It was said to have come into existence on the occasion upon which he handed $20,000 in cash to the first defendant. According to him, he then said to the first defendant: “You’ve got $45,000 now. You haven’t paid me any of the $500 a week and you want some more money”. The first defendant is said to have replied: “I’ll sign a chit for $40,000”.
Counsel for the plaintiff reminded the plaintiff in the course of his evidence in chief that on his evidence thus far he had advanced $45,000 (the original $20,000, the trifecta $5,000 and the $20,000 cash then handed over) to which the plaintiff responded that there was a further sum of $6,000 by way of a bank cheque paid by him to the solicitors for the first defendant for costs, and that amount had been paid prior to 12 January 1987. All of that amounted to $51,000. But there was more. The plaintiff said that the first defendant had said to him: “Well I’ll pay you two months at $500 per week, that’s $4,000” and “I’ll be a couple of months before I can give you the money. I’ll sign it for $40,000”.
On the plaintiff’s version, the first defendant had failed to pay $500 per week for the previous two months, $4,000, and anticipated not making any such payment in the next two months, a further $4,000, a total of $8,000 which was reflected in the IOU for $40,000.
On that basis, it appeared that the IOU was thus meant to cover the $20,000 then advanced in cash, $5,000 for the trifecta takings, $6,000 paid to the solicitors, $8,000 for arrears of instalments and prospective arrears, and a further $1,000 not yet then advanced.
But there are other problems with that make up of the $40,000. If the $8,000 related to default or prospective default in payment of the $500 instalments, then those sums were not in addition to the total of the capital advanced, they were part of it. Acknowledging owing such an amount twice does not make sense and can not increase the debt. The position might be different if it was claimed that the $500 per week was on account of interest, but I am not satisfied there was any agreement to that effect.
It was at that stage of his evidence, and in response to a question from his counsel in which the word “interest” was first used, that the plaintiff said: “Well they – he offered to pay me $500 a week and pay interest at the term or – well he didn’t say, or he said “I’ll give you a third of the pub when it’s all washed up”.”. The next questions from counsel were also suggestive of the desired answer, “So the IOU was in respect of some future liabilities” and “because of the delays”. The plaintiff agreed to both propositions.
The way in which the interest issue was raised was quite unsatisfactory and there was nothing in the answer given by the plaintiff to support his claim in that regard. It is quite probable that the parties had in mind that interest would not be payable, but that the plaintiff would be given an interest in the business. Subsequent events show that the agreement to give the plaintiff an interest in the hotel was carried out, but in a different form to that which the plaintiff had expected.
Returning to the advances claimed by the plaintiff, they comprised, on his evidence, $20,000 evidenced by the original IOUs, $5,000 trifecta money, $6,000 paid to the solicitors and two bundles of cash amounting to $20,000, a total of $51,000.
In a letter of demand from his solicitors and in a personal letter to the defendant, both in August 1990, the plaintiff particularised his claim as $25,000 advanced on 3 November 1986 (not $20,000 as the IOUs demonstrate), $6,000 paid to the solicitors and $20,000 advanced in January 1987. The trifecta winnings are not specifically mentioned. For the defendants, their solicitors replied denying any agreement and that the IOUs existed. They sought copies of the documents upon which the plaintiff relied.
The first defendant says that the arrangement with the plaintiff was that in exchange for advances for a purpose different to that put forward by the plaintiff, the plaintiff would receive a one third interest in the hotel business by way of shareholding in the company, and that he would be appointed as a director. As to the advances, the first defendant says that they were made to him for or on account of the company and that it is the company that is liable. I will return to that later, but turn now to the first defendant’s evidence.
The first defendant does not deny the original advance of $20,000 by way of the two cheques. They were credited to an account in his name alone, “that was created for the hotel until I got the company”.
The first defendant also acknowledges receiving cash on 12 January 1987, but says it was in two bundles, one of $8,000 and the other of $10,000, and not $20,000 as asserted by the plaintiff. There are other differences in detail regarding the transactions which are not necessary to resolve. The first defendant says that he signed two IOUs, one for $8,000 when that bundle was counted and the other for $10,000 at the completion of the counting of the second bundle. The objective evidence comprises a bank deposit slip and bank statement showing a credit to the first defendant’s account in the sum of $18,000 on the date upon which the IOU was signed. The first defendant’s admissions bind him (subject to the question of the involvement of the company). There is no reason to believe the plaintiff rather than the first defendant as to the difference of $2,000. The plaintiff bears the onus of proof. I find that the amount paid over on that occasion was $18,000.
The first defendant denies the trifecta winnings story altogether and the payment to the solicitors as alleged by the plaintiff. There is no evidence supporting the plaintiff’s evidence in relation to either of those matters. For the reasons given above, the IOU for $40,000 on 12 January 1987 does not really add up. The first defendant, however, acknowledges (see later) that the plaintiff did advance $3,000 towards solicitors fees incurred by both the defendants.
The Statement of Claim asserted that between 3 November 1986 and 12 January 1987, the plaintiff loaned the defendants $51,000, evidenced in writing by the three IOUs.
I have great difficulty in accepting the plaintiff’s evidence as to the trifecta winnings and the payment to the solicitor. When asked for particulars as to how the loan came to be made, the plaintiff replied that they were made to assist in the operations of the hotel and “in particular the purchase of stock and legal costs occasioned by the transfer of the business to the defendants”. The next request for particulars asked the plaintiff to identify the name of the persons to whom the loan monies were given, and he replied to the effect that the original sum of $12,000 had been paid to the defendant personally and the original sum of $8,000, he said, was paid by bank cheque to Loftus and Cameron, the solicitors. So far as that second matter is concerned, it is contrary to all of the evidence. The trifecta winnings were raised for the first time at trial.
But, it was not only the plaintiff who had difficulty in formulating and pleading the case. In the first defence filed shortly after receiving the answers to the request for particulars, the defendants simply denied the allegations contained in the Statement of Claim. Three months later an amended defence was delivered which maintained the denials but went on to plead that the plaintiff agreed to lend $40,00 to Graceful Pty Ltd for renovations to the hotel. It acknowledged the original advances of $12,000 and $8,000 and the further cash advances of 17 January 1987 of $18,000. That defence goes on to acknowledge further advances of $1,000 on 23 January and another $1,000 on 22 April 1987. All those amounts were said to have been made to the company and, it will be noted, neatly total $40,000.
That next amended defence proceeded to allege that the loans were made to the company without interest in return for which, it was agreed, the plaintiff would be made a shareholder and director of the company. In particular, it is pleaded “No time was stipulated as to when the loans should be repaid by Graceful Pty Ltd to the plaintiff”. It was not then asserted that the agreement was that the loan to the company would be converted into share capital. The defence was put forward that no demand had been made on the company for repayment.
There was then raised an allegation that the IOU of 12 January was originally for $10,00 and that the plaintiff had unlawfully altered the figure to $40,000.
The defendants then instructed other solicitors who delivered a third version of their defence. They asserted that there had been loans to the company of $42,000, the April 1987 loan now being said to have been for $3,000 by way of payment to the solicitors for legal fees. (The account for those fees was rendered in late March 1987). There were other significant changes:
·It was pleaded that the first defendant on behalf of both himself and the second defendant was negotiating with the shareholders of the company to purchase its issued capital.
·The plaintiff and the first defendant agreed that if the plaintiff provided funds to enable the first defendant to carry out certain work at the hotel premises (which would operate to induce the owner to sell the hotel to the first defendant) then the first defendant would transfer an interest in the hotel to the plaintiff, either a quarter or a third. It was up to the first defendant to decide the extent of the interest to be transferred.
·The monies were advanced, and the plaintiff and first defendant agreed that the plaintiff would receive a one quarter interest.
·However, that arrangement was then said to have been varied such that the plaintiff was to be allotted four shares in the company and the defendant’s each would hold six shares, thus the plaintiff would have the one quarter interest.
·As part of that rearrangement, the company “would accept an unsecured interest free loan from the plaintiff”.
The defence says that the company failed financially and the mortgagee took over the hotel and sold it on 20 May 1990. (That was the case). The company had no capacity to pay the monies advanced by the plaintiff.
Various alternative versions of that defence were raised, but all leading to the same result, that is, that it was the company which was liable to the plaintiff not the defendants and the company could not pay.
The express allegation that the plaintiff had altered the figures in the IOU was not pursued. It was now implied by a denial that the first defendant had signed an IOU for $40,000.
The last amended defence delivered by counsel retained by the defendants just before trial, alleges:
·If any loans were made to the defendants they were made by the plaintiff’s sister and he had no authority to bring the action.
·The company received the $42,000.
·Facts much the same as in the previous defence regarding the plaintiff acquiring a one quarter interest in the company, being appointed director, and how the company would end up being the debtor. (It is immaterial to the outcome, but the defences assert that only $40,000 was to be owed by the company, not $42,000 which had been acknowledged by the defendants as having been advanced).
·The express allegation of unlawful alteration of the IOU was revived.
There is evidence by way of a written report from a forensic document examiner in which it is concluded that there is strong evidence to support that the original writing on the IOU of 12 January 1987 read as $10,000, not as $40,000 as now appears. Just when such an alteration was made is not suggested. The first defendant says it was for $10,000, the plaintiff denies that and denies making any alteration to the document at any time. Given the doubts surrounding the manner in which the plaintiff says the sum of $40,000 was arrived at (see above) I am not prepared to place any reliance on the document as against the first defendant. On the other hand, the document whether original or altered does nothing to advance his case.
The second defendant who had been out of Australia for some years prior to trial, returned to give evidence. Her last amended defence delivered just prior to trial raised, for the first time, an allegation that the first defendant, her husband at the time, had acted throughout on his own account and not as her agent, but if she was involved, then her will had been overborne by him.
Turning to other evidence, it showed that Graceful Pty Ltd was the owner of the hotel, and the first defendant became its manager. Negotiations were entered into between him and the company with a view to his purchasing the share capital. The most reliable evidence in that regard is the letter from the solicitors for the company of 31 October 1986 referring to their recent discussions with the solicitors for Mr Gameson and confirming that he was to occupy the Maranga Hotel as tenant commencing on 3 November 1986 “pending completion of the sale and purchase of the shares in Graceful Pty Ltd”. A weekly rental of $7,354.80 was fixed and there is evidence from the records of the first defendant that such rental was paid. The letter also evidences a condition that the first defendant “will acquire all stock as per the stock take between our client’s representative and your client with payment of the stock to be effected at settlement”. (What was meant by “at settlement” is unclear, but a letter from the solicitors for the defendants to them after completion of the transfer of the shares detailing the financial adjustments made between the parties, shows an amount of approximately $43,000 having been paid for stock at that time. That settlement took place some months after the commencement of the lease.) The letter from the solicitors for Graceful Pty Ltd is endorsed by the first defendant as authorising his solicitors to accept the terms as mentioned in that letter on his behalf and to communicate his acceptance to the solicitors for the vendor. That was also dated 31 October 1986.

There is nothing in the correspondence between Graceful Pty Ltd and the defendant or elsewhere to support the first defendant’s evidence that the vendor of the shares had indicated during the course of negotiations that they would be more interested in dealing with him as purchaser if he spent money on the hotel and that he consequently decided to effect some capital improvements at a cost estimated at $40,000.
It was for that purpose that he said he sought the funds from the plaintiff. At trial he endeavoured to demonstrate by reference to the records of the company how that money was spent on the proposed capital improvements, but failed. That endeavour did not advance his case in any respect and I do not accept his evidence that the money was to be used for capital improvements, there being nothing to support it. I consider that that story was meant to be another plank in the platform to support the defence that the monies were really advanced to the company, which was the owner of the hotel.
I find that the plaintiff’s version of the purpose of the advances was accurate, it accords with business practice and the background facts as established by the documents.
The share sale agreement between the shareholders in Graceful Pty Ltd and the defendants is dated 11 February 1987. The transaction was apparently completed on the same day. A balance sheet as at that date showed the total assets of Graceful Pty Ltd as being $2,973,825 and liabilities $2,973,815. The issued and paid up capital comprised ten shares of $1 each.
Was the second defendant a party to any of the loan transactions involving the plaintiff prior to the transfer of shares? There is no documentary evidence to support her involvement. It is only shown that she worked at the hotel and that she may have been nearby when discussions between the two men took place. She and the plaintiff did not get along, and when told by him that he was to receive an interest in the business, she strongly objected. Mrs Gameson was not present at the meeting of directors of the company at which the shares were allotted and the plaintiff appointed as a director. The first defendant had her proxy. I think it more probable that Mrs Gameson was not aware of the negotiations which her husband had with the plaintiff until it was disclosed that the plaintiff was to receive an interest in the hotel. Even assuming that she knew that monies had been advanced by the plaintiff, there is nothing to indicate that it was lent to the defendants jointly. I accept that there were occasions when the second defendant was in the same room when the plaintiff and the first defendant were discussing matters or even when cash was being handed over, but none of that makes her a party to the subject transactions. I would have thought that if she were to be held liable she would have been asked to sign the IOUs. On the whole of the evidence I do not accept the plaintiff’s evidence that she joined in the request for the advance to pay liquor tax. Of all the parties she was the only one upon whom I am prepared to place reliance.
The solicitors’ account of which the plaintiff paid $3,000 was, however, directed to both defendants. It related to the purchase of the shares. Mrs Gameson was a party to that transaction. The plaintiff fails against her except to the extent of her joint liability for the $3,000.
The next question is whether the first defendant can absolve himself from liability upon the basis that it was the company which either originally, or by some legal device, later became the debtor. The evidence is clear on some points. Firstly, at the time the major advances were made by the plaintiff the company was the owner of the hotel, neither defendant held any shares in it, nor were they directors. There is nothing to suggest that either defendant had any authority to borrow on behalf of the company except in so far as the first defendant was the manager prior to the commencement of the lease. The defendants did not acquire the shares until 11 February 1987.
Such company records as there are in evidence do not show the plaintiff as a creditor, either before or after the transfer of the shares. There was a meeting of directors attended by the first defendant for himself and as proxy for the second defendant, at which the plaintiff was appointed a director and allotted shares. That meeting was held on 21 May 1987. The plaintiff was present.
The first defendant’s evidence, which is supported to some degree by that of another witness, Mr Sopp, was that at that meeting the plaintiff said that he was not prepared “to pay $40,00 for his shares, and he proposed that he buy four shares at a $1, which was 25% and provide the money as an unsecured loan to the company”. The first defendant went on to say that “We accepted that that would be the way to do it and he (the plaintiff) took four shares and we accepted that the money should go in as a loan to the company, and as I had my wife’s proxy, it was possible to do it”. Given that the assets and liabilities of the company were approximately the same, it is not surprising that the plaintiff should have declined to see the sum of $40,000 treated as share capital.
There is nothing in the minutes of that meeting, signed by the first defendant as Chairman, touching upon the question of the debt. It might have been expected that if the first defendant was accurately recalling the intention of the parties and the events, he would have ensured that either when the defendants acquired the shares in February or at the time the plaintiff became a shareholder and director in May, the appropriate steps were taken to implement and record what he perceived the real situation to be.
Mr Sopp, an accountant acting for the first defendant, present at the meeting, and who prepared the minutes, gave evidence which I consider is more likely to be an accurate recollection of what occurred. He had written a letter in August 1990 to the then accountants for the company in which he outlined his recollection. He had understood from the first defendant, prior to the meeting, that Mr McKecknie was to be allotted 25% of the shares in the company for $40,000. At the meeting the plaintiff said he was not prepared to outlay $40,000 for the shares, only $1 each.
No resolution was passed, nor any other documentation prepared, relating to the $40,000. Mr Sopp thought that perhaps the money had already changed hands, that is, that the plaintiff had paid the money to the company which had banked it into its account prior to the meeting being held. He had not been informed by the first defendant or anyone else that although the monies had all been advanced before that time and paid to the first defendant, it had not been paid to the credit of the company account.
I have no doubt that the first defendant had it in mind that the monies advanced by the plaintiff would be treated as a liability of the company. There were ways of achieving that objective, but he did not implement them and when it came to the point the plaintiff was not prepared to risk his position by allowing the first defendant to be released from the obligations to repay the advances and substitute instead the company which at the relevant time was without any equity. As things transpired the company was unable to meet its liability, and in about May of 1990, the plaintiff and defendants association with the enterprise came to an end. The company was never indebted to the plaintiff.
It had become plain to the plaintiff that the trading position of the company became progressively worse (due to factors beyond the control of the defendants). His evidence is, and I accept, that he made demands upon the first defendant from time to time regarding repayment of the debt and was assured by the first defendant that he would be paid when “things were wound up”.
Just prior to the demise of the business under the control of the parties the first defendant handed the plaintiff $500 in the hotel premises. The plaintiff claims that that money was paid in reduction of the debt owed to him by the defendants and credits them for it in the writ. There is a company record (Exhibit P 14) which treats it as being a payment to the plaintiff by the company - “borrowed May 1990”. I am of the view that the $500 payment was on account of the debt owing by the first defendant to the plaintiff. If the first defendant is to be accepted in regard to his assertion that the loans were made to the company, surely the payment would have been treated as being in partial reduction of the loans to it. Why it shows as a loan from the company to the plaintiff does not make sense. When asked about the payment of the $500 to the plaintiff in about May 1990, the first defendant replied that “no event occurred at all”, but that flat denial loses any impact it might have had when a payment is disclosed in the records, although treated differently.
By their last amended defences, both defendants say that the plaintiff made advances to the company of $20,000 on 3 November 1986, $18,000 on 12 January 1987, $1,000 on 21 January 1987 and $3,000 on 22 April 1987 ($42,000). The evidence shows that the advances were not made to the company, but to the first defendant prior to April 1987 ($39,000) and to both defendants on 22 April 1987 ($3,000). The writ was issued on 16 January 1991. The plaintiff has applied for an extension of time to institute the action pursuant to the Limitations Act 1981 (NT). Assuming that the limitation period of three years runs from the respective dates of advances, (Young v Queensland Trustees (1956) 99 CLR 560 at p 566), the earliest expired in early November 1989 and the latest in late April 1990. Questions of default relating to non payment of instalments and interest do not arise.
In May 1987 the plaintiff decided that upon the information available and the advice he had then received, he would accept shares in the company and consent to be appointed as director of it. He declined to have the funds he had paid to the first defendant treated as a loan to the company. However, the inference is plain from the evidence of the first defendant and Mr Sopp, that it was acknowledged by the first defendant at the meeting of 21 May 1987 that the plaintiff was then owed at least $40,000.
Reduced trade at the hotel led the company into financial difficulties which became worse as time passed, notwithstanding assistance from the mortgagee. It is unclear whether the first defendant kept the plaintiff fully informed as to the financial situation and the details of the arrangements made, but I have no doubt the plaintiff was given a general understanding of those matters. He had in his possession a number of documents demonstrating the difficulties being experienced and the means by which it was sought to continue the business. The evidence of the first defendant was to the effect that the plaintiff was informed that he would only be paid out of trading profits. That is consistent with the attitude of the first defendant that the debt was owed by the company, but for these purposes it is also consistent with the real position as seen by the plaintiff, that is, that the only source from which the first defendant could pay the debt was the company profits made available to him. (When I refer to the first defendant in this context I also include the second defendant to the extent of $3,000).
It became clear to the plaintiff at the latest in April 1990 that the company was not going to succeed under its then arrangement and debt burden. In general terms, its control reverted to the original shareholders in May. It was at about that time that the plaintiff recognised that the company, having failed, he could not expect payment of the loan from that source. In my opinion, that amounts to a material fact to the plaintiff’s case. It was ascertained at that time and the action was instituted within 12 months thereafter.
Although it is not necessary that there be an interaction between the material fact and the decision to sue (Sola Optical v Mills (1987) 163 CLR 636) any such interaction is not prejudicial to the plaintiff’s application. In a case like this where the date for payment of the debt is not fixed, a fact which causes a plaintiff to institute recovery proceedings is a material fact to his case. The plaintiff discovered that he had no prospect of being paid in the manner which the parties envisaged, and decided to institute the action.
If I be wrong about that, the plaintiff’s failure to institute the action within the limitation period resulted from representations made by the first defendant for himself and to the extent of $3,000 on behalf of the second defendant, that payment of the debt would be sourced from the profits of the business, or the proceeds arising from the winding up of the business in the hands of the parties. In all the circumstances of this case, including the plaintiff’s knowledge that the first defendant had no capital to commence the business, and that he was reliant upon the profitability of the business to repay the debt, it was reasonable for the plaintiff to rely upon the representations which were made.
The payment of $500 is not shown to have been made before any period of limitation had expired. The only record shows that it was made in May 1990.
The plaintiff has succeeded in showing that circumstances prescribed in s 44(3)(b)(i) and (ii) of the Limitation Act arose. In my opinion, in all the circumstances, it is just to grant the extension of time. The advances are acknowledged by the first defendant to the extent of $41,000, and neither defendant has pointed to any prejudice suffered by either of them as a result of delay in instituting the proceedings. The plaintiff stands to be prejudiced by not being able to pursue his claim. The time for institution of the proceedings is extended to 19 January 1991.
There will be judgment for the plaintiff in the sum of $37,500 ($38,000 less $500 paid) against the first defendant and $3,000 as against the first defendant and second defendant.
The court has a discretion to order that there be included in the sum, for which judgment is given, interest (Supreme Court Act 1979 (NT), s 84). The claim for interest in the writ is based upon the loan agreement and fails. No interest has been claimed pursuant to the statute. I will hear the parties further if the plaintiff wishes to seek an order in that regard.
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