Michell v Onroad Offroad Pty Ltd
[2018] VSC 648
•31 October 2018
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE COMMERCIAL COURT CORPORATIONS LIST | Not Restricted |
S CI 2017 2403
IN THE MATTER of the BANKRUPT ESTATE OF CHERYL ANN HILL
| STEPHEN JOHN MICHELL (as trustee of the Bankrupt Estate of Cheryl Ann Hill) | Plaintiff |
| v | |
| ONROAD OFFROAD PTY LTD | Defendant |
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JUDGE: | Digby J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10 September 2018 |
DATE OF JUDGMENT: | 31 October 2018 |
CASE MAY BE CITED AS: | Michell v Onroad Offroad Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2018] VSC 648 |
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CONTRACT – Formation of loan agreement – Where no written instrument – Where no evidence of an oral agreement – Inference from parties’ conduct – Where parties are a proprietary company and the sole director – Where sole director has ratified company financial statements – Whether loan agreement can be inferred from financial statements.
CORPORATIONS – Practice and procedure – ‘Books’ of a body corporate – Admissibility of books in evidence – Whether loan recorded in financial statements is prima facie evidence of debt – Whether presumption is outweighed by other evidence – Where books are used to prove matters not recorded in books – Corporations Act 2001 (Cth), s 1305(1).
EVIDENCE – Matters relating to proof – Standard of proof – Gravity of the matters alleged – Implication witness has been dishonest – Allegations of fraudulent or criminal conduct – Briginshaw v Briginshaw (1938) 60 CLR 336 – Evidence Act 2008 (Vic), s 140.
LIMITATION OF ACTIONS – Contracts and personal actions – Loan agreement with no repayment date – Whether cause of action accrues when money is advanced – Whether cause of action is revived on part payment – Limitation of Actions Act 1958 (Vic), ss 5, 24(3).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B Devanny | Nerlich Lawyers Pty Ltd |
| For the Defendant | Mr B Guzzo | James Partners Lawyers (as town agents for Murdoch Clarke) |
HIS HONOUR:
Introduction
On 22 April 2014, Ms Cheryl Ann Hill (Hill) was declared bankrupt by order of the Federal Circuit Court under the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). Mr Stephen Michell was appointed as her trustee in bankruptcy (the Trustee or the plaintiff).[1] As a result, the property of Hill, including the right to prosecute the current proceeding, has vested in the Trustee pursuant to s 58 of the Bankruptcy Act.[2]
[1]CB163.
[2]T5.13–24.
In this proceeding, the Trustee seeks recovery of $1,292,005.88 as a debt from Onroad Offroad Pty Ltd (the defendant) plus interest and costs.
For the following reasons, judgment should be entered for the defendant.
Background
The defendant was incorporated on 17 June 1998.[3] Hill was the sole director from this time until 2014.[4]
[3]CB365.
[4]CB366.
On 20 February 2014, Mr Bruce Townsend (Townsend) was appointed director of the defendant. On 13 May 2014, Townsend was also appointed secretary of the defendant.[5] Hill and Townsend are married.[6]
[5]Ibid.
[6]Affidavit of Bruce Townsend, 9 September 2018, [2].
In about 1998, the defendant and its accounts, including the ‘Loan to Director’ account that is the subject of this proceeding, were structured and established by the defendant’s former accountant Mr Anthony Darko (Darko).[7] The defendant’s relevant financial arrangements resulted from discussions with Darko at meetings with Hill and Townsend in Melbourne. Such arrangements were allegedly recorded in the books and accounts of the defendant by Darko.[8]
[7]T27.5–12; Affidavit of Bruce Townsend, 9 September 2018, [5], [6] and [7]; CB42.1-42.3.
[8]T27.5–12; Affidavit of Bruce Townsend, 9 September 2018, [6]; CB42.1-42.3.
Despite the plaintiff’s attempts to serve a subpoena, Darko did not attend the trial of this proceeding and did not give evidence.[9] The attending witnesses were unable to provide any clear insight into the accounting and taxation treatment or strategies that were adopted in the year of the alleged loan or during the early years of the defendant’s business. Further, no copies of the defendant’s financial statements and tax returns between 1998 and 2010 have been adduced as evidence.
[9]Defendant’s Submissions, [11]. Darko was said to be in Vietnam.
As a result, there is limited evidence as to the origins of the relevant loan account. The parties have not discovered any written instrument or documentation detailing a loan agreement. Nor is there any written acknowledgement of either an advance by Hill or a receipt by the defendant of $1,292,005.88 or a similar sum.
Both Hill and Townsend have denied ever making such a loan and have explained that they were never financially in a position to do so.
Accordingly, there is also no direct evidence as to the terms on which the alleged loan was made. In this setting, Counsel for the plaintiff presented the Trustee’s case as reliant on inferences which, on his submission, should be drawn from retrievable financial statements and journal entries of the defendant in the financial years 2010 to 2015.[10]
[10]T5.2–9.
Adjournment Application
On 1 May 2018, the parties were notified that the proceeding was listed for a trial commencing on 10 September 2018. On 4 September 2018, the town agent for the defendant wrote to the Court foreshadowing an application to adjourn the trial.
The adjournment was sought for a period of ‘not less than three months’.[11] The evidence adduced in support of the defendant’s application for adjournment addressed the need for Townsend to receive medical treatment in Hobart, the effect of this treatment, Townsend’s underlying health issues on his ability to effectively participate in the upcoming trial, and the plaintiff’s inability to serve a subpoena on Darko, a person who the defendant asserts is a necessary witness in this proceeding.
[11]Affidavit of Bruce Townsend, 5 September 2018, [23].
Townsend’s Health
In March 2016, aged 54,[12] Townsend was diagnosed with multifocal motor neuropathy.[13] As a result of his illness, I accept that Townsend is in constant and severe pain, suffers regular headaches and chronic neck, back and shoulder issues.[14] I also accept that the administration of pain medications can at times impair Townsend’s ability to concentrate and affect his judgment.[15] Townsend’s pain can also interfere with his sleep patterns, and in so doing, impair his cognitive function during the day.[16] Townsend deposed that his medical condition impairs his ability to focus and would materially and adversely affect his ability to participate at and give evidence in the trial of this proceeding.[17] I also accept this evidence in relation to Townsend.
[12]Ibid Exhibit ‘BT–1’.
[13]Ibid [5].
[14]Ibid.
[15]Ibid [10](a).
[16]Ibid [10](b).
[17]Ibid [11].
It also appears that Townsend’s health has deteriorated significantly over the past year. Townsend suffered severe spinal pain resulting in a three week admission to hospital in about March 2018,[18] undergoing several significant operative procedures and associated medication.[19] Townsend continues to take strong pain medication and from April 2018. He has also suffered severe shoulder pain,[20] which has compounded the effects of previous bursitis and muscle tears.[21] These matters are finally corroborated by medical certificates, including letters from Townsend’s treating neurologist, rheumatologist and GP.[22]
[18]Ibid [6].
[19]Ibid.
[20]Ibid [7].
[21]Ibid.
[22]Ibid Exhibit ‘BT–1’.
Dr Hilton Francis, in a letter concerning Townsend, states that the pain medications prescribed to Townsend ‘are known to have impact on cognitive function’, and that his concentration is already impaired by ongoing pain.[23] On 31 May 2018, four weeks after the proceeding was listed for trial, Dr Francis similarly wrote ‘I do not think it is appropriate for this gentleman to be travelling to Melbourne by plane in the foreseeable future’.[24]
[23]Ibid.
[24]Ibid.
Further, Townsend’s present treatment involves fortnightly immunoglobulin infusions.[25] This procedure is performed in hospital and takes between three and four hours.[26] Townsend will require this treatment periodically for the rest of his life.[27] At the time of the defendant’s application for adjournment, Townsend was scheduled to receive the next immunoglobulin infusion treatment on 11 September 2018, being the second day on which this proceeding was listed for trial.[28]
[25]Ibid, [5].
[26]Ibid.
[27]Ibid.
[28]Ibid Exhibit ‘BT–3’.
Absence of Anthony Darko
Darko was the initial accountant for the defendant. The disputed loan was allegedly recorded in the books of account of the defendant on the advice of Darko, and pursuant to certain accounts created by Darko in about June 1998.
The defendant’s adjournment application emphasises that Darko’s explanation as to the recording of the alleged loan and way in which the defendant’s books of account were set up would be critical in the assessment of the plaintiff’s claim, and that Darko’s absence at trial may well prejudice the defendant.[29]
[29]Ibid, [19].
As explained above, Darko has not been served with a subpoena. This is notwithstanding an application for substituted service and advice to Darko as to the date and subject of the forthcoming trial. At the time of the defendant’s adjournment application, it appeared highly unlikely that Darko will be in a position to give evidence during the course of the trial.
In her affidavit of attempted service, sworn 16 August 2018, process server Ms Holly Williams (Williams) deposes that she was ‘advised by the receptionist that [Darko] is now in Vietnam working and maybe permanently’.[30]
[30]Affidavit of Holly Williams, 16 August 2018.
Analysis of the Adjournment Application
Although there is no direct evidence that Townsend’s treatment scheduled for 11 September 2018 cannot be rescheduled, this possibility is, in my view, beside the point. I am satisfied that it would be potentially detrimental for Townsend to miss any of his scheduled treatments, given the severity of the underlying condition, the complexity of the treatment and the intervals at which it is recommended. In addition, there is no doubt that Townsend suffers chronic pain and is likely to be at least somewhat affected by his medication whenever he gives evidence.
The defendant’s application for an adjournment was for a period of no less than three months.
In their correspondence to the defendant’s former town agent, the solicitors for the plaintiff describe the proposed timeframe as ‘arbitrarily selected’.[31] However, I note that the letter of 4 September 2018 from Dr Michael Dreyer states that ‘Townsend is likely to make a complete recovery from his recent surgeries over a six to twelve week period and would be fully fit to participate in Court proceedings after that period’.[32]
[31]Affidavit of Bruce Townsend, 5 September 2018, Exhibit ‘BT–2’.
[32]Ibid Exhibit ‘BT–4’.
It is however quite unclear whether the letter of 22 August 2018 is addressing only Townsend’s recovery from the specific surgery, being the subject of that letter, or also the effects of the medications and ongoing procedures that Townsend has due to his underlying condition. The former seems likely.
Ultimately, in my view, there is no clear evidence that Townsend’s overall ability to participate in the trial will materially improve within three months. This is because of his underlying conditions which are described as ‘chronic’, and because of his ongoing extensive treatment and the effect of his prescribed drug regime.
I also note that there has been no suggestion that it would be impossible for Townsend to provide evidence by video link. However, the defendant did not seek to arrange that possible option, even though such a course was proposed in correspondence by the plaintiff’s solicitors and was not expressly rejected by the defendant.[33]
[33]Ibid Exhibit ‘BT–2’.
Decision on Adjournment
The defendant’s adjournment application was heard on 7 September 2018. In relation to that application, I decided that Townsend’s illness and his need for medical treatment did not, in all the circumstances, provide a sufficient basis for a three-month adjournment of the trial. In the event that the trial commenced as scheduled on Monday 10 September 2018, and Townsend needed to attend hospital the following day in Hobart, the hearing of the proceeding could be adjourned to resume on Wednesday 12 September 2018. That course of action would allow Townsend to give evidence on the second day of proceedings but still receive treatment on Tuesday 11 September 2018.
On the basis of the above, I refused the defendant’s application to adjourn the trial, and indicated that I was willing to modify the hearing hours, and if necessary adjourn the second day of the trial to Wednesday 12 September 2018, to permit Townsend’s medical exigencies to be accommodated without any prejudice to either Townsend, the defendant or the plaintiff.
In the event, the defendant chose to proceed with the trial in the week commencing 10 September 2018, pursuant to an agreement with the plaintiff allowing Townsend’s evidence, in the form of an affidavit sworn 9 September 2018, to be tendered without Townsend being called and cross-examined.
Accordingly, the trial of the plaintiff’s claim commenced on 10 September 2018, as scheduled. Townsend’s evidence tendered on the first day of trial is summarised below.
The Plaintiff’s Case
Counsel for the plaintiff described his client’s case in the following terms:
…this is a case where the plaintiff will ask the court to draw inferences that the books and records of the defendant are prima facie evidence of any matter stated or recorded in the book pursuant to s 1305 of the Corporations Act.[34]
When the books are read with the other available contemporaneous evidence, including the tax returns of the bankrupt, there is no ambiguity or uncertainty to displace the presumption. These inference will prove on the balance of probabilities that by some transaction or series of transactions between 1998 and 2010, the bankrupt either loaned or provided benefits to the company that were treated as loans.[35]
[34]T4.25–29.
[35]T5.2–9.
The plaintiff’s case can be summarised as follows. Between 2010 and 2015, the financial statements and tax returns of the defendant recorded a ‘Loan to Director’ account with an outstanding balance of over one million dollars.[36]
[36]CB43–129.
In the defendant’s Books of Account, journal entries record a series of debits from the ‘Loan to Director’ account to Hill which appear to reduce the outstanding balance. Relying on these documents, the plaintiff submits that the Court should find that the ‘Loan to Director’ account was created when Hill agreed to loaned funds to the defendant in 1998. The plaintiff alleges this gave rise to a ‘loan agreement’ between the defendant and Hill and that the establishment of these matters entitles the plaintiff to judgment for the amount outstanding under this alleged loan agreement.
The plaintiff also relies on s 1305(1) of the Corporations Act 2001 (Cth) (Corporations Act) which, it submits, strengthens the evidentiary value of the abovementioned entries in the books of account of the defendant.
Evidence from the Trustee
The plaintiff’s sole witness was the Trustee, Mr Stephen Michell, Accountant and Liquidator. He gave evidence including, in summary, the following:
(a) Hill was the sole director of the defendant from 1998 up to 2014.[37] The defendant’s books of account from 2010 reflect that it had a ‘Loan to Director’ account.[38] This account is shown in financial statements prepared by Accru+Hobart (Chartered Accountants).[39] At 30 June 2013, Michell points to the defendant’s financial statements showing that there was $1,292,005.88 outstanding on this account.[40]
[37]CB365.
[38]T7.27–31; CB50.
[39]CB43–129.
[40]CB109; CB115.
(b) Journal entries in the ‘Loan to Director’ account for the year ending 30 June 2014 show recurring payments of $1250 annotated ‘Cheryl’ and a one-off payment of $6300 annotated ‘Pepper home’.[41] The Trustee asserts that ‘Pepper home’ was a personal mortgage facility for Hill.[42]
[41]CB243; T8.17–10.1.
[42]T9.23–25.
(c) Payments to ‘Cheryl’ and ‘Pepper home’ reduced the balance outstanding on the ‘Loan to Director’ account.
(d) In 2013, Hill made a declaration as Director of the defendant that:
(i) the defendant’s financial statements prepared for the year ending 30 June 2013 present fairly the company’s financial position and its performance for the year; and
(ii) in her opinion, there were reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.[43]
(e) These declarations have the statutory status ascribed by s 295 of the Corporations Act.
[43]CB128.
The Trustee also relied upon the following correspondence between the parties:
(a) On 26 June 2014, the Trustee sent a letter of demand to Townsend, as the then Director of the defendant, which stated:
According to the financial statements of Onroad Offroad Pty Ltd in my possession, as at 30 June 2013, the company was indebted to the director, being the above bankrupt, in the amount of $1,292,005.88.[44]
[44]CB182.
(b) On 18 July 2014, Townsend responded as follows to the above email from the Trustee’s office:
We are unable to secure any funds. Onroad Offroad continued to pay these and other debts on a weekly payment basis until the day she [Hill] was declared bankrupt, had this not of occurred we would still be paying.[45]
[45]CB237.
(c) On 23 December 2014, Nerlich Lawyers, solicitors for the plaintiff, sent a further letter to Townsend relevantly stating:
There is no dispute in relation to the Outstanding Debt.[46]
[46]CB239.
In substance, the Trustee contended that Hill received payments, or other benefits, from the ‘Loan to Director’ account of the defendant; that these payments were recorded as a reduction of the defendant’s liability to her; and as referred to above, that Hill made a declaration the financial statements prepared for the year ending 30 June 2013 fairly represented the company’s position.
The Trustee also adduced evidence that the existence and quantum of the debt was not disputed by the defendant when it received the letter of demand.[47]
[47]CB239; T13.25–27.
Cross-Examination of the Trustee
The following key matters were addressed in the defendant’s cross-examination of the Trustee.
(a) It was put to the Trustee that the ‘Loan to Director’ account was created by an accountant shuffling figures and that the debt had been disputed by Townsend on this basis from the outset.[48] Counsel for the defendant referred to Townsend’s reply, on 22 January 2015, to the initial letter from Nerlich Lawyers (dated 23 December 2014) stating:
[48]T21.11–19.
Your correspondence states we have not disputed the debt, this is not correct, it was created by accountants shuffling figures (not real money) for tax purposes.
I am not sure what we can dispute when we never really had the money.[49]
[49]CB241.
The Trustee rejected this assertion by Townsend. He emphasised that the accounts had been prepared by a professional accountant,[50] that Hill made a declaration as to their status,[51] that tax returns had been lodged,[52] and payments had been made out of the accounts to Hill.[53]
[50]T21.17–19.
[51]T21.20–26.
[52]T21.25–27.
[53]T21.26–30.
(b) It was also put to the Trustee that the ‘Loan to Director’ account was created in relation to the office of Director rather than personally in relation to an individual Director who occupied that office at a particular point in time.[54]
[54]T18.25–29.
Counsel for the defendant noted that the relevant account is described as ‘Loan to Director’ in the financial statements without any specific reference to Hill.[55]
(c) Moreover, Counsel for the defendant highlighted to the Trustee that, following Hill’s resignation from her directorship in 2014, the general ledger for the ‘Loan to Director’ account records a payment to Townsend, the new Director, for $400.[56]
The Trustee acknowledged ‘that may be the case’.[57] However, he stated that the recording of the payment and the recipient of the payment could be different.[58]
[55]T13.5–11; Defendant’s Written Submissions, [13].
[56]CB262.
[57]T19.1.
[58]T19.4–9.
Re-Examination
The Trustee’s evidence in re-examination was that:
(a) Even if the payments were being made to the ‘office’ of the Director, rather than Hill personally, the right to payments was nevertheless an ‘asset’ of Hill that would vest in the Trustee upon her bankruptcy and the defendant’s treatment of the loan account after bankruptcy is irrelevant.[59]
(b) The Trustee also gave evidence that he did not transfer this interest to Townsend at any point in time.[60]
(c) In response to the suggestion that the defendant’s accountants had in substance shuffled figures, the Trustee gave evidence that the total liabilities of the defendant, disclosed in the defendant’s 2011–12 tax return, were consistent with the total liabilities reported for 2011 in the financial statement.[61]
[59]T22.20–26.
[60]T22.27–28.
[61]T23.3–26; CB61; CB76.
Plaintiff’s Criticism of Hill
As explained below, Hill admitted that she received net payments of approximately $100,000 from the defendant in the 2013 financial year from the ‘Loan to Director’ account.[62] Her firm evidence was however that the payments were ‘directors drawings’.[63]
[62]T36.20–23.
[63]T34.1–3.
Counsel for the plaintiff put to Hill that the payments from the defendant which she received were not disclosed as income on her tax return,[64] which showed that the funds were not directors’ drawings and were actually ‘loan repayments’.[65]
[64]T37.8–13.
[65]T37.14–17.
In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd.[66] Mason CJ, Brennan, Deane and Gaudron JJ observed:
The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary “where so serious a matter as fraud is to be found”. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.[67]
[66](1992) 110 ALR 449.
[67]Ibid 449–50 (Mason CJ, Brennan, Deane and Gaudron JJ).
Insofar as Counsel for the plaintiff was suggesting that Hill was not being honest or forthcoming about her income and tax returns, I am far from persuaded that this was so. The Court would not make such a finding lightly. Proof of fraudulent or dishonest behaviour on the balance of probabilities will generally require something in the nature of clear and cogent evidence. The plaintiff adduced no evidence of this nature. By contrast, I regard Hill as a credible and honest witness and I am not prepared to find, whether directly by implication, that there was any falsification of financial statements or tax returns on her part.
The Defence
The defendant pleads that the plaintiff’s claim is barred under the Limitation of Actions Act 1958 (Vic) (Limitation of Actions Act).
In addition, the defendant’s substantive case rejects the plaintiff’s assertion that there was ever a ‘loan agreement’ and expressly denies that there was ever any relevant advance of funds.
While acknowledging that the financial statements record amounts outstanding on a directors’ loan account, Hill maintains that those liabilities were created for tax benefits by the defendant’s former accountant, Darko. Hill was emphatic that no funds were ever advanced to the defendant.
Further, while acknowledging that the annotations to various debits on the directors’ loan account refer to her and to her personal mortgage facility, Hill maintains that any funds she received from the ‘Loan to Director’ account were ‘drawings’ and not ‘loan repayments’. Hill claims that given her annual income in 1998 was about $30,000, she clearly did not have access to a million dollars that could have been advanced to the defendant.
Application to Amend Defence
Prior to the commencement of the trial, the defendant made an application to amend its defence. It sought to add a pleading that the Trustee’s claim was ‘statute-barred’ given that the alleged loan agreement was made in 1998.[68] The plaintiff’s opposition to the defendant’s proposed limitation amendment included what Counsel described as a ‘formal opposition’ upon the principles in Aon Risk Services Australia Ltd v Australian National University.[69] The plaintiff did not otherwise raise any substantive arguments in response to the application.[70]
[68]T3.21–30.
[69](2009) 239 CLR 175.
[70]T4.2–7.
On 10 September 2018, I allowed the defendant’s proposed amendment. The merits of this defence are considered below.
Evidence from Hill
In relation to the financial statements for the year ending 30 June 2013, which purported to identify the ‘Loan to Director’ account, Hill’s evidence was that the ‘Loan to Director’ account was for directors of the defendant to take drawings;[71] and that the balance had been relatively stable since the defendant was incorporated in 1998.[72]
[71]T26.24–29.
[72]T26.30–31.2.
Hill maintained, consistently with what is stated in Townsend’s correspondence with the Trustee, that the loan account sum was created by accountants shuffling figures:
MR GUZZO:And then right down the bottom, the last paragraph, he says, ‘Your correspondence states that we have not disputed the debt. This is not correct. It was created by accountants shuffling figures (not real money) for tax purposes’?
MS HILL: Yes, that's correct.[73]
[73]T14.2–6.
Hill’s evidence was also that in 1998 she earned $30,000 in wages. She did not, therefore, have funds to advance to the defendant as a loan and was never in possession of a sum around one million dollars:[74]
MS HILL:Because I didn't think about it. I didn't think of it as being a loan account. Ah, if it's a loan account, I must have got $1m from somewhere, and in 1998 I earnt $30,000 when I worked at the Health Insurance Commission. So where did the $1m come from?[75]
[74]T40.21–25.
[75]T40.21–25.
Cross-Examination
In Counsel for the plaintiff’s cross-examination of Hill, he endeavoured to trace the balance of the ‘Loan to Director’ account using the available financial statements, pointing out to Hill that:
(a) FY2009–10 reflected an outstanding ‘Loan to Director’ of $1,863,823.01.[76] Hill’s evidence was that this is the first point in time at which Accru+Hobart were retained.[77] Between 2002 and 2010, Hill and a bookkeeper had maintained the defendant’s accounts.[78] There are no available financial statements for years prior to FY2010–11.[79]
[76]CB50.
[77]T39.2–10.
[78]T32.16–19.
[79]T41.23–42.10. The FY2010-2011 statements also include financial information in respect to FY2009-2010.
(b) FY2010–11 reflected a ‘Loan to Director’ of $1,488,695.18.[80]
(c) FY2011–12 reflected a ‘Loan to Director’ of $1,393,174.00.[81]
(d) FY2012–13 reflected a ‘Loan to Director’ of $1,292,005.88.[82]
[80]CB50.
[81]CB76.
[82]CB115.
Counsel for the plaintiff referred Hill to a MYOB print-out of the transaction record for the ‘Loan to Director’ account for the period 1 July 2011 to 30 June 2014.[83] It was put to Hill that a number of the debits recorded on the ledger are annotated ‘Cheryl’. Counsel for the plaintiff also put to Hill that the sum of the debit entries minus the credit entries is equal to the amount of the reduction on the ‘Loan to Director’ account between FY2011–12 and FY2012–13, as recorded on the financial statements.[84] Counsel for the plaintiff also put to Hill that, taken together, the ledger and financial statements demonstrated that Hill received approximately $100,000 from the ‘Loan to Director’ account between 1 July 2012 and 30 June 2013.[85]
[83]T34.4–6; CB383.
[84]T35.1–6.
[85]T36.20–23.
Hill did not deny receiving the payments referred to in the last preceding paragraph.[86]
[86]T36.20–23.
Counsel for the plaintiff also put to Hill that the above amount was not disclosed as income on her tax return.[87] Hill’s tax return for FY2012–13 discloses net income of only $154.[88] Given it has not been disclosed as income by Hill, Counsel put to her that the $100,000 could not be ‘drawings’ because receipts of such a character would have been taxable. On his submission, the $100,000 referred to in the defendant’s books of account was only explicable as repayment of the loan that is alleged by the plaintiff.[89]
[87]T36.24–29.
[88]CB146.
[89]T37.8–17.
Counsel for the plaintiff suggested that such an arrangement would have ‘tax advantage’:[90]
HIS HONOUR: How does that operate?
MR DEVANNY: Effectively, the plaintiff, instead of paying salary and wage expense on the drawings, the director would be able to – whatever was put into the company – be able to pull that out without tax evasion consequences in a personal capacity.[91]
[90]T52.18–28.
[91]T52.23–30.
Counsel for the plaintiff also observed that the defendant had depreciating assets for the year ending 30 June 2013.[92] These included ‘workshop equipment and tools’ ($187,500), ‘plant improvements’ ($216,330) and ‘national truck spares equipment’ ($2000).[93] He then put to Hill that the alleged loan by her to the plaintiff company was the only way in which the defendant could have acquired these assets. In response, Hill claimed that the defendant’s assets would have been acquired on finance.[94]
[92]CB120; T40.31–41.11.
[93]CB120.
[94]T40.31–41.11.
Evidence from Townsend
At trial, the parties agreed that Townsend’s affidavit sworn 9 September 2018 would stand as his evidence and that the plaintiff would not submit him to cross-examination.[95] Townsend’s affidavit states that:
[95]T2.2–6.
(a) he is currently the sole Director and Secretary of the defendant;
(b) up until 22 April 2014, Hill was the sole Director of the defendant and attended to all administrative matters relating to the defendant;
(c) he was introduced to Darko prior to the incorporation of the defendant;[96]
[96]Affidavit of Bruce Townsend, 9 September 2018, [6].
(d) he and Hill attended a meeting with Darko sometime between February and August 1998 in Melbourne; [97]
[97]Ibid.
(e) following this meeting, he and Hill engaged Darko to act as the accountant for their ‘labour hire business’, that is a labour hire business operated by Hill and Townsend; [98]
[98]Ibid.
(f) the defendant was incorporated on 17 June 1998 ‘[o]n the advice of Mr Anthony Darko’ to ‘assume the operation of our then labour hire business’; [99]
[99]Ibid.
(g) Darko remained the accountant for the defendant until approximately 2002; [100]
[100]Ibid [7].
(h) from 2002 until 2010, Townsend and Hill prepared the defendant’s accounts with bookkeepers until the engagement of Accru+Hobart in approximately 2012; [101]
[101]Ibid.
(i) he does not recall ever advancing any monies to the defendant ‘by way of loans’; [102]
[102]Ibid [8].
(j) by letter dated 22 January 2015, Townsend wrote to the plaintiff’s solicitors in response to their assertion that there was no dispute in relation to the subject ‘debt’. Townsend’s response was:
Your correspondence states we have not disputed the debt, this is not correct, it was created by accountants shuffling figures (not real money) for tax purposes. I am not sure what we can dispute when we never really had the money.[103]
[103]CB42.3.
Further, Townsend deposed that:[104]
(a) Darko remained the defendant’s accountant until approximately 2002. From then until about 2010, Hill and bookkeepers maintained the accounts. In 2012, the firm Accru+Hobart were engaged and, as of approximately twelve months ago, were replaced by KRR Accountants & Finance Brokers.
(b) Townsend was appointed the director of the defendant on 20 February 2014 and its secretary on 13 May 2014. Since then he has assumed the defendant’s administrative role, reviewed the books and accounts and generally familiarised himself with various financial aspects of the defendant. A bookkeeper is employed who provides the necessary data to the defendant’s external accountant. The bookkeeper then prepares its financial statements and income tax returns, which he subsequently approves on advice of the external accountants.
[104]CB42.2 [5] and [7].
Loan Agreement – Considerations
To succeed on its claim, the plaintiff must prove on the balance of probabilities that:
(a) the defendant owes a debt to Hill; and
(b) the amount of the debt is $1,292,005.88.
The pleaded basis for the alleged debt owed by the defendant to Hill is the alleged loan agreement.[105]
[105]Statement of Claim [5] and [6].
To prove the existence of the alleged debt, the plaintiff must prove the existence of the asserted loan agreement.
For the reasons which follow, I am not satisfied that the plaintiff has established the existence of the alleged loan agreement. Further, on the present state of the evidence, I am not satisfied that Hill, directly or indirectly, advanced the alleged sum of over one million dollars that was allegedly loaned to the defendant.
Basis for the Loan Agreement
On 3 October 2017, the defendant requested Further and Better Particulars of the plaintiff’s Statement of Claim. Specifically, the defendant sought the ‘usual particulars’ of the loan agreement that was alleged in Paragraph [5]:
A.Wherever the usual particulars are sought of any agreement, contract, arrangement, representation, statement, term, condition, notification, advice, information, instruction, direction, transaction or other matter or thing:
(a)state whether it was wholly or partly (stating which) in writing, in computer-readable form, oral or to be implied;
(b)in so far as it was in writing, identify sufficiently the document or each of the documents (if more than one) constituting the same and say where such document or documents now may be inspected or in whose possession it or they now are (and if any such document has been lost or destroyed set out its terms as well as they can be recollected);
(c)insofar as it is contained in any computer-readable form (including but not limited to a disk, hard drive, tape, memory stick or random access memory) identify that form, say where and in whose possession it now is, where and when it may be inspected and examined, and if there is no copy, give the material substance of it;
(d)insofar as it was oral, give the substance of the conversation or each of the conversations (if more than one) constituting the same and:
(i)say where and when the conversation occurred;
(ii)say if it was face to face or by telephone;
(iii)identify each party to the conversation and, if a party acted on behalf of another, on behalf of whom they acted;
(iv)specify the manner in which the statement was made; and
(v)give the material substance of each conversation, not merely the conclusion reached, by stating the substance of what was said by each of the participants to the conversation; and
(e)insofar as it was implied, state what were the acts, facts, matters, things and circumstances giving rise to such implication, with reference to all material dates and places.
The plaintiff’s Further and Better Particulars of Claim filed 24 October 2017 provide:
Paragraph 5 of the Statement of Claim
(a)In response to (a), the Plaintiff refers to and repeats the particulars at paragraph 5 of its Statement of Claim and says further that the Agreement is implied where:
(i)financial statements for the Defendant prepared by Accru+Hobart Chartered Accounts for the year ending 30 June 2013 (Defendant’s 2013 Financials) record a current interest bearing liability, being a loan from directors, in the amount of $1,292,005.88;
(ii)Cheryl Ann Hill was the only director of the Defendant between 17 June 1998 and 19 February 2014 (inclusive); and
(iii)on or about 26 September 2013, Cheryl Ann Hill signed the director’s declaration for the Defendant’s 2013 financials.
The plaintiff accepts that it cannot adduce any direct or documentary evidence of the alleged loan agreement or the subject advance. There is no written instrument detailing the terms. Nor, in my view, is there persuasive secondary evidence on the subject advance. For example, there are no letters accompanying loan repayments or making repayment demands contemporaneously referring to the loan agreement; and no witnesses were called to attest to any partly oral components of the agreement. Instead, the plaintiff founds its case on the submission that the loan agreement can be inferred, namely from the conduct of the defendant and Hill.
Inferring an Agreement
In Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd,[106] Sundberg J made the following observations on agreements inferred from conduct:
A contract may in certain circumstances be inferred from conduct, even where no offer and acceptance can be identified…However the existence or otherwise of an enforceable agreement depends ultimately on the manifest intention of the parties, objectively ascertained…Where mutual promises are sought to be inferred, the conduct relied upon must, on an objective assessment, evince a tacit agreement with sufficiently clear terms. It is not enough that the conduct is consistent with what are alleged to be the terms of a binding agreement. The evidence must positively indicate that both parties considered themselves bound by that agreement…[107]
…it will only be in very clear cases that the courts will infer a contract from conduct in the absence of written or oral communications that evidence the exchange of mutual promises…In most instances, contract by conduct cases will involve a complex set of facts and require evidence from those who have played a role in the relationship between the parties. Necessarily, where a contract is denied, the credibility of those involved on both sides may be crucial.[108]
[106][2009] FCA 499.
[107]Ibid [38] (Sundberg J) (citations omitted).
[108]Ibid [39] (citations omitted).
The Victorian Court of Appeal considered a trial judge’s inference of an agreement between companies in the same corporate group in White v Timbercorp Finance Pty Ltd (in liq); Collins v Timbercorp Finance Pty Ltd (in liq) (Timbercorp).[109] The Court held that there was an agreement between entities that intercompany transactions could be evidenced by journal entry. In that matter, the facts founding the inference included that the group had a single operating bank account, the relevant companies had the same directors and were both wholly-owned subsidiaries of the same parent, the companies were the subject of directors’ declarations that the financial accounts gave a true and fair view of the financial position, and the companies were the subject of an audit report to the same effect.[110]
[109](2017) 123 ACSR 284.
[110]Ibid 322–23 [147], [148] (Ferguson CJ, Santamaria and McLeish JJA).
The Court of Appeal was receptive to such an approach in Timbercorp and relevantly concluded:
Absent some special feature, an agreement that intercompany transactions may be evidenced by journal entry must be inferred in this case. Any contrary conclusion defies commercial sense.[111]
[111]Ibid 322–23 [147].
The High Court of Australia’s decision in Manzi v Smith (Manzi)[112] is also instructive. In 1974, liquidators applied for declarations under the corporations’ legislation that, among other things, payments made to a shareholder prior to liquidation were voidable preferences and that other shareholders, some of whom were also directors, were indebted to the company. On the latter point, the liquidators relied on journal entries in the books of account of the company which detailed payments made to the relevant shareholders. Critically, however, there was no evidence in Manzi that the shareholders were aware of these journal entries relied upon by the Liquidator or that they were parties to an agreement pursuant to which payments were made.
[112](1975) 132 CLR 671.
In Manzi, Barwick CJ stated that the Acting Chief Justice of the Supreme Court of Western Australia had found:
The fact is that the entries were the equivalent of payment of the accounts referred to; their effect was accordingly to extinguish the obligations to which they referred.[113]
[113]Ibid 673 (Barwick CJ).
The High Court overturned the decision of the Acting Chief Justice of the Supreme Court of Western Australia. Barwick CJ held:
The company's assertions in its Books of Account did not establish the indebtedness of the appellants or any payment of money in discharge of that indebtedness.
…not [sic] was there any evidence that the appellants acknowledged any indebtedness to the company in the sums which his Honour has treated as having been extinguished by the journal entries to which I have referred.[114]
[114]Ibid 674.
The Chief Justice concluded that the liquidators needed to ‘investigate in fact the transactions which are said to be reflected in the Books of Account’.[115] Both Mason and Jacobs JJ agreed with the Chief Justice’s evidentiary analysis and conclusions.[116]
[115]Ibid 674.
[116]Ibid 674 (Mason J); 675 (Jacobs J).
The Chief Justice’s observations are relevant and of assistance here. In that case, journal entries in a company’s books of account did not, per se, obviate the need for the moving party bearing the onus of proof to prove the nature and existence of the underlying transaction alleged to give rise to the defendant’s indebtedness.
Decision on Existence of a Loan Agreement
The plaintiff asks the Court to infer the existence of the loan agreement from the financial statements of the defendant that are the subject of Hill’s Director’s Declaration which refer to a ‘Loan to Director’ in the sum of $1,254,809.19, including at the date Hill resigned as director[117]; from journal entries demonstrating periodic payments were made by the defendant to Hill or for her benefit; from Hill’s personal tax returns which the plaintiff submits reflect receipts consistent with the existence of the Loan Agreement; and loan repayments by Hill. The plaintiff seeks to characterise such payments to Hill as ‘repayments’ of the advance under the alleged loan agreement with the defendant.
[117]CB234; Plaintiff’s Written Submissions, [21].
As outlined above, ‘it will only be in very clear cases’ that the Court will infer an agreement from conduct without evidence of the written or oral communications that evidence the exchange of promises.[118] While Timbercorp may have been a ‘very clear case’ of that type, to infer the existence of the asserted loan agreement in this matter is I consider unsustainable, given the evidentiary case confronting the plaintiff in the present proceeding.
[118]Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499 [38] (Sundberg J).
The circumstantial evidence on which the plaintiff relies must be evaluated against the direct, clear, unequivocal and, in my view, credible evidence given by Hill which was also in essence consistent with Townsend’s evidence. Similarly, the plaintiff’s reliance on s 1305(1) of the Corporations Act, addressed below, is to be considered in the same context.
Hill was in the best position to speak to whether the alleged loan agreement had ever been entered into, and whether she ever advanced over one million dollars to the defendant. Her direct and persuasive evidence, which was substantially unchallenged by the plaintiff, was that she did not advance this money to the defendant, and that she was at no relevant time in possession of funds approaching one million dollars that she could advance to the defendant. In my view, this defeats the plaintiff’s inferential evidentiary case and assertions that there was a loan agreement between the defendant and Hill, and that Hill advanced the relevant money to the defendant and received loan repayments, from time to time.
Hill’s evidence on the above issue was also consistent with the evidence of Townsend. Hill’s evidence was that Darko established the defendant’s accounting systems and books of account at about the time the defendant was incorporated in 1998. Townsend’s evidence was that in doing so Darko created a book entry by shuffling figures as opposed to real money for tax purposes, and that no actual money was ever advanced to the defendant by way of loan.
In my view, the strength of Hill’s evidence rebuts any inference which might otherwise be drawn from the book entry in the defendant’s books of account referring to a ‘Loan to Director’ in the sum of over one million dollars, which accounts as formally returned include Hill’s supporting ‘Director’s Declaration,’ and what are asserted to be related payments. Hill’s evidence and that of Townsend also rebuts the inferences sought to be drawn by the plaintiff that Hill periodically received ‘repayments’ from the defendant and that her tax returns reflected Hill treating such payments as repayments of capital.[119]
[119]T37.8-17.
As I have noted above, Townsend’s evidence was materially consistent with Hill’s evidence. I also consider that Townsend’s evidence and correspondence of 22 January 2015[120] sufficiently clarifies the position in relation to the plaintiff’s assertion there was no dispute by the defendant over the alleged debt. That evidence in my view negates the effect of Townsend’s letter of 18 July 2014. The evidence put forward in Townsend’s Affidavit is sworn evidence in relation to his letter of 22 January 2015 (part of which is extracted in that Affidavit) and is more contemporary and specific than the communication of 18 July 2014.
[120]Affidavit of Bruce Townsend, 9 September 2018, [9] and [8].
Furthermore, the plaintiff has not proffered any cogent case as to how the original loan agreement could have formed between Hill and the defendant. Both Hill and Townsend are emphatic there was no loan to the defendant and that they did not have one million dollars to advance.[121] The plaintiff could not and did not challenge this evidence. In my view, it defies both commercial and common sense, in these particular circumstances, to find that Hill agreed to loan and advance money she did not have.
[121]T40.3–6; T40.21–25 (Hill); Affidavit of Bruce Townsend, sworn 9 September 2018, [9]; CB241 (email exchange between Townsend and the Liquidator).
In any event, sporadic payments from the defendant to Hill, between twelve and seventeen years after the fact, are not in my view, in the circumstances, a positive indication that the parties were objectively bound to a loan agreement formed in June 1998. These payments are not clearly described as repayments on a loan. Nor is there clear evidence they were treated as such by the recipient.
Furthermore, in this case, the above evidence of both Hill and Townsend constitutes ‘a special feature’ of the type I have earlier referenced. It has not been shown by the plaintiff that it defies commercial sense to accept the defendant’s case. Darko’s establishment and structuring of the defendant’s books of accounts, whether accurate or compliant with relevant accounting practice, may well have been considered, at least by Darko as desirable and effective.
I accept that Hill at no stage intended to enter into the loan agreement with the defendant, that at no stage did she ever do so, and moreover, that Hill did not make the alleged advance to the defendant and did not have the financial wherewithal to do so.[122]
[122]T26.24–29; T27.17; T40.7–13; T40.21–25.
Use of Company Books
The plaintiff relied upon s 1305(1) of the Corporations Act and a number of authorities in relation to that section. This section provides in relevant part:
Admissibility of books in evidence
(1)A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.
(2)A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1).
The term ‘books’ is defined non-exhaustively in s 9 of the Corporations Act:
“books” includes:
(a) a register; and
(b) any other record of information; and
(c)financial reports or financial records, however compiled, recorded or stored; and
(d) a document;
but does not include an index or recording made under Subdivision of Division 5 of Part 6.5.
The effect of s 1305(1) of the Corporations Act was considered by Austin J in ASIC v Rich:[123]
Section 1305(1) does not make the company’s books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact…
In my view it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company’s books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation.[124]
[123](2009) 236 FLR 1.
[124]Ibid 82 [397]–[398] (Austin J) (citations omitted).
This approach was adopted by Sloss J in Shot One Pty Ltd (in liq) v Day.[125] After considering accounting records suggesting that the plaintiff had advanced loans to the defendant, her Honour reached the following conclusion:
…while Shot One’s general ledger and financial accounts are books for the purposes of s 1305(1), and are generally to be treated as prima facie evidence of the matters stated in them, I am not satisfied that the loan account entries recorded in the books of Shot One over the relevant period can be relied upon as ‘proving’ either the loan transaction(s) which the respective entries purport to record, or the quantum of the alleged indebtedness. When the loan account entries are viewed in the context of the body of evidence before the Court, that was available as at 23 May 2012, regarding the preparation of the MYOB accounts and the financial statements of Shot One, one cannot be satisfied that the loan account entries in the company’s books are probative evidence that could be relied upon to prove indebtedness on the part of Rising Rocket. In particular, the manner in which the loan account entries made by Mr Grano were later adjusted down or written off and re-allocated, and then reinstated unilaterally, by journal entries made by Terrence Jasper & Associates on instructions from Nicholas Day, and without reference to the parties to the underlying transaction, undermines their reliability. Accordingly, the prima facie evidence constituted by the company’s books is rebutted or ‘outweighed’ (to adopt Austin J’s language) by that other evidence.[126]
[125][2017] VSC 741.
[126]Ibid [244] (Sloss J).
In this matter, the books of account adduced as evidence in this matter record a series of debit and credit entries on a ‘Loan to Director’ account. Those books are, accordingly, prima facie evidence of the existence of the account and the relevant debits and credits.
In Tosich Construction Pty Ltd (in liq) v Tosich,[127] Lehane J made the following observation on accounting entries:
Accounting entries, after all, reflect and may provide evidence of the nature of, the underlying transaction. The character of the underlying transaction depends, principally at least, on the intention of those who entered into it.[128]
[127](1997) 23 ACSR 466.
[128]Ibid 472 (Lehane J) (affirmed by Tosich Construction Pty Ltd (in liq) v Tosich (1997) 78 FCR 363).
The observation is apposite in the present case. The accounting entries relied on by the plaintiff do not alone suffice as proof of the underlying loan or the advance alleged or the debt sought to be recovered by the plaintiff. Instead, whether there is a loan agreement as pleaded and asserted by the plaintiff depends on the objective intention of the defendant and Hill at the time the agreement is alleged to have been formed. Such evidence is wholly absent, whereas the direct evidence from Hill on the matter, largely corroborated by Townsend in key respects, is wholly antithetical.
In my view, in the context of the entire body of evidence before the Court, the success of the plaintiff’s claim requires more than bare deemed proof of the existence of an account and proof of the debits and credits in the defendant’s books of account and related accounts. The plaintiff is, as explained above, required to prove the existence of an underlying loan agreement between Hill and the defendant and the advance made thereunder.
Accordingly, I consider that s 1305(1) of the Corporations Act is of somewhat limited assistance in this case.
Conclusion on the Loan Agreement
For the above reasons, I consider that the plaintiff has failed to prove the existence of the alleged loan agreement giving rise to the defendant’s indebtedness.
Limitations Defence – Considerations
On 10 September 2018, I allowed the following amendment to the defence:
10.Further as to paragraphs 5 to 9 the Defendant further says that in any event the Plaintiff’s claims are statute barred pursuant to the provisions of Section 5 of the Limitation of Actions Act 1958 (Vic), which provides that no action shall be brought after the expiration of six years from the date on which the cause of action accrued in respect of actions founded on simple contract (including contract implied in law). Any claim for repayment of the alleged loan accounts having been created in or about 17 June 1998 would fall within this provision
Limitation of Actions Act
The defendant did not refer to a specific subparagraph of the Limitation of Actions Act. Section 5 of the Limitation of Actions Act provides:
5 Contracts and torts
(1)The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued—
(a)Subject to subsections (1AAA), (1AA) and (1A), actions founded on simple contract (including contract implied in law) or actions founded on tort including actions for damages for breach of a statutory duty;
(b) Actions to enforce a recognizance;
(c)Actions to enforce an award, where the submission is not by an instrument under seal;
(d)Actions to recover any sum recoverable by virtue of enactment, other than a penalty or forfeiture or sum by way of penalty or forfeiture.
(1AAA)An action for defamation must not be brought after the expiration of 1 year from the date of the publication of the matter complained of.
(1AA) Subject to subsection (1A), an action for damages in respect of personal injuries must not be brought after the expiration of 3 years from the date on which the cause of action accrued.
(1A)An action for damages for negligence nuisance or breach of duty (whether the duty exists by virtue of a contract or of provision made by or under a statute or independently of any contract or any such provision) where the damages claimed by the plaintiff consist of or include damages in respect of personal injuries consisting of a disease or disorder contracted by any person may be brought not more than 3 years from, and the cause of action shall be taken to have accrued on, the date on which the person first knows—
(a) that he has suffered those personal injuries; and
(b)that those personal injuries were caused by the act or omission of some person.
(1B)Subsection (1A) as amended by the Limitation of Actions (Amendment) Act 1989 applies to each case where the date on which a person first knew the matters specified in paragraph (a) and (b) of that subsection is within six years before the commencement of that Act.
(1C)Subsections (1A) and (1B) apply despite anything to the contrary in this or any other Act.
(2)An action for an account shall not be brought in respect of any matter which arose more than six years before the commencement of the action.
(3)An action upon a bond or other specialty shall not be brought after the expiration of fifteen years from the date on which the cause of action accrued:
Provided that this subsection shall not affect any action for which a shorter period of limitation is prescribed by any other provision of this Act.
(4)An action shall not be brought upon any judgment after the expiration of fifteen years from the date on which the judgment became enforceable.
(5)(a) An action to recover any penalty or forfeiture or sum by way of penalty or forfeiture recoverable by virtue of any enactment shall not be brought after the expiration of two years from the date on which the cause of action accrued.
(b) In this subsection penalty does not include a fine to which any person is liable on conviction of a criminal offence.
(7) Save as otherwise expressly provided an action shall not be brought to recover any arrears of interest in respect of any sum of money whether payable in respect of a specialty, judgment, legacy, mortgage or otherwise, or any damages in respect of such arrears, after the expiration of six years after they became due.
(8) This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the Court by analogy in like manner as the enactment corresponding to that provision was applied before the repeal of that enactment by the Limitation of Actions Act 1955.
(9)Despite subsection (1C), this section does not apply to an action to which Part IIA applies.
Submissions on the Limitation Defence
Notwithstanding the defendant’s application to amend its defence, this aspect to the defence was addressed fleetingly at trial. Counsel for the defendant submitted that because there was no stipulation for a repayment date it must be taken that the alleged loan was repayable on demand and ‘it follows that time began to run when the alleged loan was created on or about 17 June 1998’.[129]
[129]Defendant’s Written Submissions, [25].
In response, the plaintiff relied on s 24(3) of the Limitation of Actions Act. This provision provides in relevant part:
24 Fresh accrual of action on acknowledgement or part payment
(3) Where—
(a)any right of action has accrued to recover any debt or other liquidated pecuniary claim or any claim to the personal estate of a deceased person or to any share or interest therein; and
(b) the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof—
the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment:
Provided that a payment of a part of the rent or interest due at any time shall not extend the period for claiming the remainder then due, but any payment of interest shall be treated as a payment in respect of the principal debt.
The plaintiff submitted there was direct evidence of Hill receiving funds within the year ending 30 June 2013. Receipt of the funds was, in fact, admitted by Hill in her evidence. The funds were thus ‘part paid’ within six years of this proceeding being commenced in 2017. For this reason, the plaintiff submitted that the limitation argument raised by the defendant should fail.
Analysis of the Limitation Defence
If there was a loan from Hill to the defendant, the starting point is that the defendant would have been liable to repay the loan from the moment the funds were advanced. In Ogilvie v Adams,[130] to which the defendant referred, Fullagar J described the liabilities of a creditor for a loan without terms for repayment as follows:
The common law has always regarded the fact of indebtedness as a continuing detention by the debtor of the creditor’s money, and this is whether the creditor brought an action of debt or an action in indebitatis assumpsit. Therefore if A lends money to B, then instantly B is detaining A’s money. In order to prevent a cause of action for recovery arising in A instantaneously on paying the money, the parties must expressly contract out of that situation by words clearly inconsistent with that situation. The courts have long since settled it that a mere statement or agreement that the money is repayable on demand (or request or at call) is not sufficient to contract out of that situation where all else that is known of the terms of the contract is that A has paid money to B by way of loan. The lender’s cause of action still arises instanter on receipt of the money by the borrower, so that the lender’s cause of action becomes statute barred at the expiry of six years after receipt of the money.[131]
[130][1981] VR 1041.
[131]Ibid 1043 (Fullagar J).
This passage was approved by Nettle J in VL Finance Pty Ltd v Legudi.[132] Likewise, in Young v Queensland Trustees Ltd,[133] Dixon CJ, McTiernan and Taylor JJ stated that ‘[a] loan of money payable on request creates an immediate debt’.[134]
[132](2003) 54 ATR 221; [2003] VSC 57 [39], [40] (Nettle J).
[133](1956) 99 CLR 560.
[134]Ibid 566.
Professor Dal Pont observes that ‘[i]t has been accepted for centuries that if a contract of loan is silent about repayment, the lender’s right to repayment accrues at the time the money is advanced, at which time therefore beings for limitation purposes’.[135] This default position applies in this jurisdiction.[136]
[135]GE Dal Pont, Law of Limitation (LexisNexis Butterworths, 2016) 99 [5.20].
[136]cf Limitation Act 2005 (WA) s 59: ‘A cause of action for the repayment of a debt repayable on demand accrues when there is a failure to comply with a demand for repayment’.
The plaintiff alleges that the loan was advanced to the defendant on or around 17 June 1998. The parties have not adduced any evidence as to the terms on which the loan was made nor are any terms alleged other than the defendant would pay the loan back to Hill on demand. The default position identified in Ogilvie v Adams thus applies and the cause of action accrued on or around 17 June 1998. Accordingly, under s 5(1)(a) of the Limitation of Actions Act, the cause of action in simple contract has been barred since around 17 June 2004.
Section 24(3) of the Limitation of Actions Act does not assist the plaintiff. To inadvertently make a payment to a creditor without acknowledging liability for the relevant debt does not attract s 24(3)(b).
The operation of s 24(3)(b) is explained in Professor Dal Pont’s text on limitation:
A cause of action to recover a debt can be revived, and the running of time can start afresh, other than by the debtor making a written acknowledgement of the debt. This outcome may ensue by way of the part payment of the debt – which need not necessarily be in cash but can be made ‘in any mode which the parties agree shall be treated as equivalent to payment in money’ – although again assuming that this provides in the form of an admission by the debtor that the debt remains due despite the passage of time.[137]
[137]Dal Pont, Law of Limitation 357–58 [17.47] (emphasis in original).
The plaintiff submits that Hill’s declaration on the financial statements of the company amounts to an ‘admission’.[138] Such an admission does not answer the particular requirements of s 24(3). The provision specifically contemplates an admission in the form of a part payment. It cannot be satisfied by nothing more than a pro forma declaration as to the financial status of the defendant made for the purposes of compliance with the Corporations Act.
[138]T51.24–52.2.
The plaintiff also submits there were payments from the defendant to Hill which trigger the operation of s 24(3)(b) of the Limitation of Actions Act. But this too is insufficient. What the plaintiff must demonstrate, on the balance of probabilities, is a causal link between the payments and the alleged debt. This requirement was considered in Surrendra Overseas Ltd v Government of Sri Lanka,[139] which concerned s 23(4) of the Limitation Act 1939 (UK) 2 & 3 Geo 6, c 21:
A part-payment, like an acknowledgment, can only revive the cause of action and start time running afresh if it provides evidence in the form of an admission by the debtor that the debt remains due despite the passage of time.[140]
[139][1977] 1 WLR 565.
[140]Ibid 576.
This reasoning was adopted in Chethams (a firm) v Remington & Co (a firm) with respect to the Victorian Act.[141]
[141][1999] 3 VR 258, 262–63 [20], [21], [26] (Balmford J).
Decision on the Limitation Defence
Here, the plaintiff relies on payments that are vaguely described as ‘Cheryl’ and ‘Pepper home’.
In my view, there is no evidence of a payment or payments which can properly be characterised as admissions by the defendant that the alleged debt remains due. To merely assert that there is an admission and point to any payment is insufficient. The Limitation of Actions Act requires the plaintiff to demonstrate that the defendant made a payment which was in respect of the alleged debt. That causal link is essential. Only then will such payment constitute an ‘admission’ for the purpose of the Act.
Accordingly, the cause of action which accrued on or around 17 June 1998 has been barred from or about 17 June 2004. The plaintiff has not shown that part payments revived its right to prosecute the claim.
Conclusion
For the above reasons the plaintiff’s claim fails because:
(a) no loan agreement or relevant advance has been established; and
(b) the plaintiff’s action for recovery of the alleged debt is barred pursuant to s 5(1)(a) of the Limitation of Actions Act.
Order
The plaintiff’s claim is dismissed.
I shall await the parties’ proposed final form of orders, including as to costs.
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