Tsocanos v Wheeler
[2013] VCC 1269
•4 October 2013
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE | Revised (Not) Restricted |
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-12-05489
| ARTHUR TSOCANOS | Plaintiff |
| v. | |
| EFI WHEELER and ANTHONY MARK WHEELER | Defendants |
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JUDGE: | HIS HONOUR JUDGE ANDERSON | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4 & 5 September 2013 | |
DATE OF JUDGMENT: | 4 October 2013 | |
CASE MAY BE CITED AS: | Tsocanos v Wheeler & Anor | |
MEDIUM NEUTRAL CITATION: | [2013] VCC 1269 | |
REASONS FOR JUDGMENT
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Catchwords: Advance of money by parents to daughter to assist in purchase of house – Whether gift or loan – Whether subsequent acknowledgments of debt signed by borrower – Property purchased to be charged with repayment of the loan – Whether applicable limitation period six years as a simple contract or 15 years as the recovery of a principal sum of money secured by a mortgage or other charge on property – Section 5(1) and section 20(1) Limitation of Actions Act 1958 (Vic) – Equuscorp Pty Ltd v Lloyd [1999] 1 VR 854 not followed –Bristol & West Plc v Bartlett [2003] 1 WLR 284 and West Bromlich Building Society v Wilkinson [2005] 1 WLR 2303 followed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A. Schlicht | Nicholas Lontos |
| For the Defendants | Mr M. Dean | Settle Legal |
HIS HONOUR:
1 Arthur Tsocanos, the plaintiff, is the father of the first defendant, Efi Wheeler. The second defendant, Mark Wheeler, is her husband. In the proceeding, Mr Tsocanos seeks to recover the principal and interest in respect of two loans he and his wife allegedly made, first in 1998 to their daughter of $30,000, and secondly in 2005 to their daughter and son-in-law of $45,000. Each loan was said to be evidenced by a written acknowledgment of debt prepared by Mr Tsocanos’s solicitor, Mr Danny Karavias.
2 The first document is dated 20 August 2000 and purports to be signed by Mr and Mrs Tsocanos as the lenders and to be signed by Mrs Wheeler (as Efi Tsocanos) as the borrower. All signatures are witnessed by Mr Karavias. The document is stamped as an “original mortgage” with the “amount secured: $30,000”. The document does not provide a date for repayment of the loan. Security for the loan was a second mortgage over a property at Prahan. The original advance was used by Ms Wheeler to purchase the property.
3 The second document is dated 30 May 2005 and purports to be signed by Mr and Mrs Tsocanos as the lenders and to be signed by Mrs Wheeler (as Efi Tsocanos) and Mr Wheeler as the borrowers. The signatures are not witnessed. The document is not stamped. The document provided for “one repayment of $45,000 plus interest on 30 May 2010”. Security for the loan was a second mortgage over a property at South Oakleigh. Mr Tsocanos said that the money advanced was used to purchase the South Oakleigh property.
4 Mrs Wheeler said that the advance of $30,000 in 1998 was a gift and not a loan. She denied that she had signed the acknowledgment of debt dated August 2000. Mr and Mrs Wheeler said that the signatures on the acknowledgement of debt, dated May 2005, were not theirs. Mrs Wheeler said that because of an illness from which she suffered in 2005, she could not remember receiving money from her parents. Mr Wheeler said that he personally did not receive $45,000 and did not believe his wife had, because she would have told him. Mr Wheeler had on 30 April 2003 signed a contract for the purchase of the Oakleigh South property.
5 The defendants relied upon the Limitations of Actions Act 1958 (Vic) (“the Act”) claiming that:
a.causes of action to recover either loan was statute barred under s5(1) of the Act as:
(i)the $30,000 loan did not have a repayment date and, accordingly, the principal was forthwith repayable upon demand, and the limitation period immediately began to run;
(ii)the $45,000 loan, although expressed to be repayable on 30 May 2010, also provided that, if the borrowers failed to execute and deliver security in the form of a second mortgage (which had not occurred), the principal and accrued interest “shall immediately become due and payable to the lender upon demand”;
b.even if they were liable for the principal, recovery of more than six years of interest was prevented by s5(7) of the Act.
6 In response, the plaintiff relied upon s20(1) of the Act claiming that:
a.in relation to the $30,000 loan, the acknowledgment of loan constituted a mortgage and accordingly the appropriate limitation period for the recovery of the principal was 15 years;
b.in relation to the $45,000 loan, the repayment was not due until 2010. Alternatively, no reliance could be placed by the borrowers upon their failure to execute and deliver the security document as that provision was for the benefit of the lenders and had not been waived by them. The acknowledgement also constituted an equitable mortgage, which by 2005 did not need stamping to be enforceable;
7 Section 5(7) applied to the recovery of interest, however, the acknowledgement provided that interest was:
a.payable weekly in arrears;
b.calculated from and including the advance date;
c.if not paid when due, may be capitalised by the lender at monthly intervals;
d.was payable on capitalised interest.
8 The issues for determination in the proceeding are:
a. was the advance of $30,000 a loan or gift?
b. did Mrs Wheeler execute the acknowledgment of debt dated 20 August 2000?
c.is the claim for the recovery of the principal of $30,000 statute barred? Does s5(1) or s20(1) of the Act apply?
d.was the advance of $45,000 made to the defendants?
e.did Mr and Mrs Wheeler execute the acknowledgement of debt dated 30 May 2005?
f.was the sum of $45,000 to be repaid on 30 May 2010?
g.did the defendants’ failure to execute and deliver the security document in respect of the $45,000 advance make the principal sum repayable upon demand?
h.is the claim for recovery of the principal sum of $45,000 statute barred?
i.if either principal sum is recoverable and the recovery of interest is limited to six years, is that sum calculated on the basis that interest is capitalised for the entire period the principal sum was outstanding?
Background facts
9 Mrs Tsocanos died in 2007. Mr Tsocanos was her executor and sole beneficiary. He said that in 1998 his daughter asked for money to help with the purchase of a house at Prahran. They gave her $30,000 and she offered the property as a “guarantee” for the loan. It was a loan and not a gift. The signatures on the 2000 acknowledgment of debt are those of himself, his wife and his daughter. In 2005, he and his wife lent a further sum of $45,000 to his daughter and son-in-law to purchase a property at South Oakleigh which was to be security for the loan. The acknowledgment of debt dated 30 May 2005 is signed by himself and his wife and by their daughter and her husband. No attempt was made until 2012 to recover the principal or interest in respect of either loan.
10 Mr Tsocanos is aged 87. His credit was attacked under cross-examination. It was suggested that his two sons had threatened him on occasions, and by inference that he was only pursuing the present action at their insistence. One son, Mr Paul Trent, also gave evidence. I considered that Mr Tsocanos and Mr Trent’s responses when asked about these matters were convincing.
11 Mr Karavias is the solicitor who prepared the two acknowledgments of debt and also acted for Mrs Wheeler in 1998 for the purchase of the Prahran property and for Mr Wheeler in 2005 for the purchase of the Oakleigh South property. Mr Karavias said that the two acknowledgements of debt were signed by all parties in his presence at Mr and Mrs Tsocanos’ Armadale home. He had signed his name as a witness to the signature of Mrs Wheeler to the 2000 document. He could not explain why he had not signed his name to the 2005 document. He speculated that it may have been because the copies he actually signed as a witness had been distributed at the meeting and he took a copy without his signatures as witness back to his office.
12 Mrs Wheeler gave evidence that before she purchased the Prahran property in 1998 she spoke with her parents on a few occasions about the proposed purchase. They said to her that they would pay the deposit but there was “no discussion of it as a loan”. She did not sign the 2000 acknowledgment of debt. She denied that the signature on the document beside her name was hers. As to the alleged advance of $45,000, she said, “I don’t remember receiving the money because I was very ill at the time”. She did not sign the 2005 acknowledgment of debt. She said that the signature on the document beside her name was not hers.
13 Mrs Wheeler gave evidence of a conversation with her father at his home before a recent mediation. In the discussion, he told her that he had been threatened and intimidated by her two brothers, suggesting that the proceeding was being pursued at their urging and not because Mr Tsocanos wished to. Mrs Wheeler said that when she first saw her lawyers, after receiving the writ in this proceeding, she told them that she had not signed the acknowledgments of debt. In cross-examination she was taken to other examples of her signature on documents relating to the purchases of the two properties. In each instance she said that the signatures on those documents were “different” to and not “similar” to the contemporaneous signatures she had identified on the purchase documents.
14 Mr Wheeler denied that he had signed the 2005 acknowledgment of debt. He said, “I never received $45,000 from my parents-in-law personally”, and that, “My wife would normally have mentioned to me if she had received the amount [of $45,000] from her parents”. He said in cross-examination that after he received the writ he told their solicitors that there was no loan of $45,000. He admitted that signatures on documents relating to the Oakleigh South property were his. He said that those signatures were “similar” but “slightly different” to the signature on the 2005 acknowledgment of debt.
Findings on the evidence
15 I accept that:
a. the advances of $30,000 and $45,000 were made;
b. they were made by way of loan rather than gift; and
c. the acknowledgments of debt were signed by the borrowers.
16 The reasons for these conclusions are:
a.Mr Tsocanos and Mr Karavias gave evidence that was persuasive. The evidence of Mr and Mrs Wheeler was not.
b.the signatures of Mr and Mrs Wheeler on the contemporaneous documents admitted as their signatures are very similar to the signatures on the acknowledgments of debt. Mr Wheeler’s statement that they were “similar but slightly different” was more accurate than the evidence of Mrs Wheeler;
c.it is surprising that if Mrs Wheeler had immediately told their lawyers that she had not signed the acknowledgment of debt, or in the case of the second loan, that no advance of $45,000 had been made, that the defence would have been drafted as it was or that the reservation to file a further defence after inspection of the loan documents was not later acted upon;
d.ordinarily, instructions that signatures on written documents relied upon were not those of the persons alleged to have appended them would require the raising of these matters as specific defences;
e.further, if those instructions were given, the matter would ordinarily be investigated by a handwriting expert. The absence of such evidence suggests that the view was taken that such evidence would not assist the defence case;
f.Mr Karavias’ statement of account for his professional fees for the Oakleigh South purchase include the item “drawing loan agreements” which Mr Karavias said related to the 2005 acknowledgment of debt.
Limitation of Actions Act defences
17 Section 5(1) of the Act would ordinarily bar the recovery of a loan that became repayable more than six years before the writ was issued. The 1998 loan did not have a specified date for repayment and would therefore be repayable upon demand (see VL Finance Pty Ltd v Legudi [2003] VSC 57 at paragraphs 39ff per Nettle J ). The limitation period would ordinarily have expired six years after the date the debt was acknowledged on 20 August 2000.
18 In relation to the 2005 loan, it was repayable on 30 May 2010, less than six years before the writ was issued. The defendants, however, rely on clauses 4.2, 4.3 and 4.4 of the acknowledgment of debt to assert that the debt was immediately due and payable upon demand “in the event that the borrower fails to execute and deliver the security” in the form of a second mortgage over the Oakleigh South property which was to be prepared by the vendors’ solicitors.
19 In my view, the defendants cannot rely upon their failure to execute and deliver a security document which was the responsibility of the lenders’ solicitors to prepare. The clauses relating to the preparation and execution of a second mortgage as security for the loan was a condition of the agreement for the benefit of the lenders and could be waived by them (see Gange v Sullivan (1966) 116 CLR 418 at 429 to 430 per Barwick CJ, and Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 565 per Brennan J).
Section 20(1) Limitations of Actions Act
20 In relation to the 1998 loan, the plaintiff relies upon s20(1) of the Act which reads as follows:
“No action shall be brought to recover any principal sum of money secured by a mortgage or other charge on property, whether real or personal, after the expiration of 15 years from the date when the right to receive the money accrued, notwithstanding that the money is by any act or instrument expressed to be a charge until paid”.
21 The provision was considered by Warren J in Equuscorp Pty Ltd v Lloyd [1998] VSC 171. A lender sued a borrower for monies that had been owing for more than six years. The advance was secured by a mortgage although “no actual mortgage” was entered into. As Warren J said: “Rather, there was a loan contract document and which document contained a clause whereby Lloyd agreed to enter into a mortgage with the plaintiff. However, the mortgage was never effected” (at paragraph 4).
22 Her Honour said that:
“The issue for this court to determine is whether the learned magistrate was correct in characterising the claim as one for a simple contract debt under s5 of the Limitation of Actions Act and, therefore statute barred or whether he ought to have treated the claim as one for a sum of money secured by a mortgage on property and, therefore, within time” (at paragraph 9).
23 Her Honour traced the history of both s5(1) and s20(1) and considered that in the case before her, she should follow the decision of the English Court of Appeal in Barnes & Anor v Glenton & Ors [1899] 1 QB 885 rather than the decision of the Full Court of the Supreme Court of Victoria in The National Bank of Tasmania Ltd (in liquidation) & Anor v McKenzie [1920] VLR 411 (“The National Bank of Tasmania Ltd”). In Barnes, the Court of Appeal held that the six year limitation period for a simple contract debt had not been repealed by the 1833 Act which introduced the legislative ancestor of s20 by providing “full recovery of principal money charged on land and prescribed a time limit of 20 years”. In an amendment in 1874, this was reduced to 12 years.
24 The Court of Appeal in Barnes considered that an action “to recover money lent to the defendants…who transferred certain mortgages to the plaintiffs” was “a simple contract debt” with a six year limitation period under the 1623 Act. That limitation period was not inconsistent with the provisions of the 1833 and 1874 Acts. The Victorian decision in The National Bank of Tasmania Ltd at pages 419-420 considered the judgment in Barnes, although the analysis of Warren J at paragraph 18 of Equuscorp suggests that this consideration was not comprehensive and was erroneous and that no view was expressed by the Full Court on the actual proposition advanced by the English Court of Appeal. Warren J (at paragraph 19) distinguished the Full Court decision in The National Bank of Tasmania Ltd on its facts and followed the reasoning of the Court of Appeal in Barnes.
25 In Equuscorp, Warren J quoted with approval the judgment of Romer LJ in Barnes that the equivalent of s20(1) does not relate to “to simple contract debts charged on land either expressly or impliedly”. Romer LJ stated that, “No action to enforce a simple contract debt, whether charged on land or not so charged, shall be brought after six years” and the extended limitation period under the equivalent of s20 related to a speciality debt where an action was “brought for a remedy against the land after twelve years”. The statutory provision considered by the Full Court in The National Bank of Tasmania Ltd was s47 of the Real Property Act 1915, an earlier version of s20 of the Limitation of Actions Act.
26 In Equuscorp, Warren J quoted the plaintiff’s pleading of the security as follows:
“4. As security for the due performance of the Defendants (sic) obligations under the Contract the Defendants mortgaged to the plaintiff all their right title and interest in the timeshare resort known as ‘Club Yarrawonga Resort’ (‘the mortgaged property’)”.
27 In the present case, the provisions relating to “security” in the acknowledgment of debt are as follows:
“4.1 As security for the loan the borrower agrees to grant the lender the following security (all of which is hereinafter referred to as the ‘security’):
(a)second mortgage over Certificate of Title Volume 5204 Folio 646;
(b)caveat over Certificate of Title Volume 5204 Folio 646.
4.2The security shall be prepared by the lenders’ solicitors at the expense of the borrower, which amounts shall include all applicable disbursements, stamp duty and registration fees.
4.3The security shall be duly executed by the borrower in favour of the lender and delivered to the lender simultaneously with the execution of this acknowledgment or within such further time as the lender may allow.
4.4In the event that the borrower fails to execute and deliver the security pursuant to the provisions of clause 4.3 above, the balance of the principal amount then outstanding together with all accrued interest shall immediately become due and payable to the lender upon demand from the lender”.
28 In the present case, it is agreed that a second mortgage document in registrable form was not prepared and executed by the parties. The present action is for recovery of the “principal sum of money” advanced upon the equitable mortgage security contained in clauses 4.1 to 4.2. The proceeding does not seek “a remedy against the land” to use the words in the formulation by Romer LJ as he said was appropriate for the equivalent of s20(1) that he was considering.
29 Warren J in Equuscorp also considered the decision of Sutton v Sutton [1882] 22 ChD 511 which the Court of Appeal in Barnes had distinguished. Both of these decisions have been subsequently discussed by the English Court of Appeal in Wilkinson & Anor v West Bromwich Building Society [2004] EWCA Civ 1063. In that case the Court of Appeal was considering an appeal from proceedings in which a building society was seeking “to recover the balance of an advance made on mortgage, plus interest. The society is attempting to pursue a personal claim against the mortgagors in order to recover the amount of the deficit or shortfall, which occurred when the society sold the mortgagor’s house, over which it had a legal charge securing repayment of the advance”. The Court of Appeal referred to two of its recent decisions where “this Court ruled on the interpretation and interrelation of s8 (‘time limit for actions on a speciality’) and s20 (‘time limit for actions to recover money secured by a mortgage or charge’) of the 1980 Act in Bristol and West plc v Bartlett [2003] 1 WLR 284 and Scottish Equitable PLC v Thompson [2003] HLR 48” (paragraph 3).
30 The Court of Appeal considered the decisions of both Sutton and Barnes, which had been referred to by Warren J in Equuscorp. The Court of Appeal noted the “two important general points” decided in Sutton and said that Barnes was authority for the proposition that “the six year period for simple contract was not enlarged to 12 years by s8 of the 1874 Act. That provision was prohibitory and was enacted to limit, not to enlarge, existing limitation periods relating to the recovery of debts charged on land”.
31 In the earlier decision of Bristol and West plc in 2002, the Court of Appeal had considered the pronouncement of the Court in Hopkinson v Tupper [1997] EWCA Civ 882 where, “in the context of a striking out for want of prosecution application”, the Court said, “it is seriously arguable that when a mortgagee has repossessed and has sold the security and is seeking to recover the shortfall, his claim is in simple contract whatever the nature of the instrument under which the debt was initially secured”.
32 The Court of Appeal in Bristol and West plc noted that, “this expression of view has caused some concern to banks and other lending institutions who have assumed that any claim to such shortfall lies under the mortgaged document by which the mortgage was created and is thus governed by the 12 year limitation period specified in either s20 of the Limitation Act 1980 for money secured by a mortgage or in s8 of the Act for a document under seal, there referred to as a specialty. These three appeals have been brought in order to obtain an authoritative determination of the question whether such claims to a shortfall after a sale by a mortgagee have a 12 year limitation period or only the six year limitation period applicable to simple contract debts”.
33 The summary of the Court of Appeal’s decision on the cases before it, is set out in paragraph 35:
“We therefore conclude that in other than exceptional cases (which we cannot, at present, envisage), claims for a mortgage debt will be governed by s20 of the Limitation Act even if the mortgagee has exercised his power of sale before he issues proceedings. That means that he has 12 years from the accrual of the cause of action to sue for the principal of the debt”.
34 In the House of Lords’ decision of West Bromich Building Society v Wilkinson [2005] 1 WLR 2303, Lord Hoffman (with whom the other Law Lords agreed), at paragraph 10 expressly stated that the decision of the Court of Appeal in Bristol and West plc was “rightly decided”. The appropriate section of the Limitations Act 1980 to apply was s20 as “the cause of the action when it arose was a claim to a debt secured on a mortgage”.
35 I consider that by reason of the recent decisions by the courts in England, that the approach adopted by Warren J in Equuscorp would no longer be regarded as good law in England. The present approach in England is more consistent with the views expressed by the Full Court of the Supreme Court of Victoria in The National Bank of Tasmania Ltd, particularly at pp 419-420.
36 In the circumstances, I consider that I am bound to conclude in the present case that the appropriate limitation period to apply is 15 years under s20(1) and not six years under s5(1). This conclusion will appear to be also more consistent with the recognition of equitable mortgages and the charging of land in the manner achieved by the acknowledgment of debt in the present case. Accordingly, the plaintiff will be entitled to recover the principal sum in relation to the earlier advance of $30,000 as well as the later advance of $45,000.
Interest
37 In relation to the question of interest, s5(7) of the Act provides that:
“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”.
38 Until the service of notices dated 26 September 2012, the plaintiff and his late wife had not sought to recover any interest from the borrowers and none had been paid. The defendants submit that pursuant to the Act the plaintiff should only recover interest for the period of six years immediately prior to the issue of the writ in respect of the interest accruing during that period.
39 Plaintiff’s counsel submitted that the capitalisation of interest pursuant to each agreement meant that the recoverable interest should be calculated on the sums as they had been capitalised over the years, although limited to the period of six years prior to the institution of this proceeding. I consider that this submission should not be accepted. Clause 2.4 of each acknowledgment of debt provided that “interest which is not paid when due for payment may be capitalised by the lender at monthly intervals. Interest is payable on capitalised interest at the rate referred to in clause 2.1”.
40 The interest, although capitalised, remains interest. Recovery of arrears of interest is not permitted by s5(7) “after the expiration of six years after they [the arrears of interest] became due”. In my view, the interest should only be recoverable upon the principal sum which is not statute barred under s20(1) and not in respect of interest calculated on the interest which can no longer be recovered because of s5(7). Capitalised interest can only be recovered for the period of six years prior to the commencement of the proceeding. The interest should only be capitalised on the principal sum at the commencement of that period, but interest may thereafter be capitalised in accordance with the agreement.
41 The plaintiff will be entitled to recover:
a.in respect of the first loan, $30,000, and interest on that sum calculated for the period of six years prior to the issue of the proceeding on 13 November 2012. From the calculations on page 36 of the Court Book, this would appear to be the capitalised amount of $47,606.23 and interest on that sum of $3,526.39, a total of $51,132.62;
b.in respect of the second loan, $45,000, and interest on that sum calculated for the period of six years prior to the issue of the proceeding. From the calculations on page 37 of the Court Book, this would appear to be the capitalised amount of $67,532.87 and interest on that sum of $4,418.04, a total of $71,950.91.
42 I will hear further from the parties as to the appropriate form of order, including in relation to interest and the question of costs.
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Certificate
I certify that these 13 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 4 October 2013.
Dated: 4 October 2013
Philippa Gilkes
Associate to His Honour Judge Anderson
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