Coughlan v George

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3588/02 MARK JOHN COUGHLAN v PETER GEORGE JUDGMENT 1 HIS HONOUR: These proceedings arise out of a mortgage between Mark John Coughlan, as mortgagor, and Peter George, as mortgagee. There is a considerable contrast between the situations in life of these two gentlemen. Mr George is a property investor who proclaimed himself, in evidence, to be worth $30 million. Mr Coughlan is shown by the evidence to lead an unsteady way of life. He is a drinker and a gambler. He is of much less substance financially than Mr George. 2 They both gave evidence before me and I should say at once something about their credit as I have assessed it. Mr George's evidence is not without some difficulties and his memory of events and conversations five or six years ago is far from perfect, which is not surprising. Mr Coughlan presents as a man whose speech and memory are impaired. He himself, without objection, attributed his poor memory to the ravages of alcohol. He also says he has other health problems, including liver disease and a post traumatic stress disorder. His counsel, Mr Cox, attempted to tender a medical report of a specialist psychologist and psychiatrist as to his condition, but this was rejected because it was brought forward late in the proceedings and had not been received by the defendant's representatives before the day of trial. Even without expert evidence as to the mechanisms, he presents as a man with a severely impaired memory. Furthermore, he was demonstrated in cross examination to have made a number of untrue statements in a credit card application to a bank. For the foregoing reasons he is a person of little credit and, except where I indicate otherwise, I have preferred Mr George's evidence to that of Mr Coughlan. 3 The mortgage arose out of a loan by Mr George to Mr Coughlan of $7,000 advanced in cash, followed by a further $25,000 advanced in cash. Mr George deposed that after the advance of the $7,000 but before the advance of the $25,000 he had a telephone conversation with Mr Coughlan in which he said the following: "Myself: 'You will have to sign a mortgage for the $32,000.00 I am lending you. It will be interest free, but repayable in a year's time. I have requested my Solicitors to draw up the papers.' Mark: 'Yes, that's fine'."

I accept Mr George's account of this conversation. I do not accept Mr Coughlan's account of the same conversation, said to have taken place in a Chinese restaurant in Dixon Street, particularly the portion in which Mr Coughlan said that he offered to deposit title deeds with Mr George as security for the loan and Mr George refused. 4 A mortgage was subsequently drawn up between solicitors for both parties and was executed. I do not accept Mr Coughlan's version that the mortgage had not been previously spoken of when, some time after the advance of the $25,000, it was presented to him by Mr George in the Duke of Edinburgh Hotel, Enmore and Mr Coughlan's signature was then and there placed on the mortgage. It is clear from solicitors' correspondence in evidence that the mortgage was prepared between solicitors (a Mr John Orford was acting for Mr Coughlan, as he continued to act until some time in 2002) and the solicitors settled the document and arranged for execution in a much more conventional fashion. 5 The mortgage document is in evidence. It bears date 30 October 1997. It acknowledges the advance of the $32,000. The mortgagor covenants to pay the mortgagee that sum on 31 August 1998. He has the right to repay the whole of the principal sum at any time. There is no covenant for the payment of interest. 6 During the term of the loan a number of other events took place. First, there were negotiations for the sale by Mr Coughlan to Mr George of a property of Mr Coughlan at Callala Bay, but that sale fell through. 7 Secondly, Mr George says that he lent Mr Coughlan a further $28,000 in cash but, whereas the earlier payments in cash are admitted, Mr Coughlan denies receipt of this payment. The circumstances in which the moneys were actually said to have been paid are somewhat curious. Mr George says that he handed the money to Mr Coughlan's son, Mark Daniel Coughlan, who was then aged about 15. He says that when he did this, Mr Coughlan junior was standing in King Street, Newtown, opposite a hotel which is on the corner of King Street and Missenden Road. On the one hand it is very strange, even among men who, on the evidence, engaged in transactions involving tens of thousands of dollars in cash, that the money should be handed in the street to a youth whom Mr George had never previously met. Not only does Mr Coughlan deny he received the money but Mr Coughlan junior was called as a witness and flatly denied that any such thing had ever occurred. On the other hand, that story, which builds into it an additional witness who could deny the tale, seems a very strange story to make up if one were going to allege a cash payment that had not been made. It may be that my general acceptance of the conversation in [9] below points to acceptance that the advance was in fact made. But I do not need to determine, for the purposes of these proceedings, the truth as to whether the advance of $28,000 in cash was ever made and I make no finding as to that matter. Originally the payment of that sum was claimed in these proceedings, but that claim is not now made and, whether or not the advance was ever made, no claim is now made that the $28,000 was ever secured by the mortgage. 8 The third thing that is said to have occurred during the term of the mortgage is that a conversation took place in which Mr Coughlan offered to repay Mr George $30,000. Both men placed the conversation in 1998. It is far from entirely clear on the evidence whether this took place before or after 31 August. From the place that the account of the conversation occupies in Mr George's affidavit and the fact that he does not allege that it occurred after 31 August, I infer that it incurred before 31 August. 9 Mr George's account of that conversation is as follows: "Later that year (1998), Mark met me at a pub on the corner of Cleveland Street and Elizabeth Street in Redfern and we had a conversation in words to the effect: Mark: 'I can pay you $30,000.00 now but you need to give me a discharge of my mortgage and my title deeds. I will pay you the balance $30,000.00 at a later date.' Myself: 'If I do as you request I will have no security or document for the balance $30,000.00 that you owe me.'"

I accept in general terms that this conversation occurred. In particular, I accept that Mr Coughlan offered to repay $30,000 against a discharge of the mortgage and the return of his title deeds. I accept that Mr George said, "If I do as you request I will have no security or document for the balance, $30,000.00 that you owe me." Whether or not Mr Coughlan in terms acknowledged a balance of $30,000, there is no suggestion he demurred to Mr George's reference to it. I do not accept Mr Coughlan's version of this conversation, which is to the effect that the conversation took place on the telephone; that Mr Coughlan said, "I want to fix up that loan"; and that Mr George replied, in effect, that he was busy, "We'll deal with it later". Nor, so far as it matters, do I accept Mr Coughlan's evidence that he could not find Mr George between August 1998 and July 2002. 10 It is clear both that Mr Coughlan did not proffer the $32,000 to Mr George on 31 August 1998, nor did Mr George then or thereafter demand it. The next thing that occurred was that on 31 August 2001 Mr Coughlan's solicitors wrote to Mr George's solicitors asking for a payout figure for the mortgage. On 24 September 2001 Mr George's solicitors replied in a somewhat equivocal way: "While the actual mortgage document reflects that our client advanced your client the sum of $32,000.00, which was payable, without interest, by 31 August 1998, we are instructed that our client advanced your client at about the same time a further sum of $28,000.00 and that it was agreed between the parties that the entire sum of $60,000.00 was payable by 31 August, 1998. It is now some three (3) years since the due date for payment of the sum advanced and, in the circumstances, your client should pay our client interest from that period. We are instructed that the interest being claimed by our client is 7.5% compound interest on the sum of $60,000.00 from 1st September, 1998. No doubt, your client should appreciate that our client has lost use of these monies since the due date of payment and should therefore be compensated in this regard."

When I say the reply was equivocal, I refer to the fact that it does not unequivocally state that the $28,000 was secured by the mortgage. 11 There was some further correspondence after which, on 27 November 2001, Mr Coughlan's solicitors wrote enclosing two cheques for $32,000 and demanded discharge of the mortgage. The two cheques were a bank cheque for $30,542.03 and a cheque on the solicitors' trust account for $1,457.92. When I say that the cheques totalled $32,000, they were in fact five cents short of that sum, but this appears to me not to matter under the de minimis principle and it has not been submitted that the tender should be regarded as short of $32,000 for the lack of five cents. On 30 November 2001 Mr George's solicitors replied, returning the cheques and stating: "Under instructions from our client we return herewith the above cheques. We refer to our letter of 24th September 2001 and advise that our client is agreeable to settle the matter on payment of the sum of $60,000.00 plus compound interest at the rate of 7.5% with effect from 1 September, 1998."

I regard this answer as an unequivocal refusal to discharge the mortgage except upon payment of $60,000 and interest calculated in the fashion stated. 12 The defendant contends that he is entitled to interest by way of damages under the principle stated in Cook v Fowler (1874) LR 7 HL 27. In simple terms, the plaintiff contends that he should not be regarded as under any obligation to pay interest because he cannot be said to be in breach of his obligations under the mortgage. This, in short, is because he was relieved of his obligation to tender the money on 31 August 1998 by the conversation that had taken place before then between him and Mr George and the obligation to pay had not been reactivated by a demand made after that time. He also points to the lack of a covenant for interest and the fact that the loan was made on a non commercial basis between men who were then friends. Certainly Mr George gave, in evidence, his appreciation that Mr Coughlan's need for the money at the time was greater than his as a reason for not calling up the loan. 13 Consideration of the law can commence with Cook v Fowler supra. The locus classicus in this field is in the speech of Lord Selborne at 37 as follows: "My Lords, unless it can be laid down as a general rule of law, that upon a contract for the payment of money borrowed for a fixed period, on a day certain, with interest at a certain rate down to that day, a father contract for the continuance of the same rate of interest after that day, until actual payment, is to be implied, the decision of the Vice-Chancellor in this case is not erroneous. I entirely agree with those of your Lordships who have preceded me that no such contract is to be implied, unless there is something to justify it, upon the construction of the words of the particular instrument; and that, although in cases of this class interest for the delay of payment post diem ought to be given, it is on the principle, not of implied contract, but of damages for a breach of contract."

This pronouncement has been generally accepted in Australia and New Zealand for over 100 years. In New Zealand see Broadbank Corporation Ltd v Mosgiel Ltd [1985] 1 NZLR 257. The principle has been accepted and applied by Judges in this Division of this Court on many occasions. Instances in comparatively recent times are Re Andersons Seeds Ltd [1971] 2 NSWLR 120, where Street J accepted the principle at 122 - 123. It was also accepted by McLelland CJ in Eq in Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd NSWSC 9 December 1994 unreported. (Another judgment in that case delivered on the same day is reported in (1994) 6 BPR 14,053.) The principle was more recently discussed by Young J (as his Honour then was) in Lai v Gong (1997) 8 BPR 15,837. And see generally E L G Tyler, P W Young and C E Croft, Fisher and Lightwood's Law of Mortgage (Aust Ed, 1995) [39.40]. 14 Andersons Seeds supra and Hawkesbury Valley Developments supra were both cases, as was Cook v Fowler supra before them, in which there had been a stipulation for the payment of interest during the term of the mortgage but no stipulation for payment of interest if the principal were not repaid on time. In Lai v Gong Young J made it plain that he regarded the principle as extending to cases where (as his Honour held was the case on the true construction of the mortgage) there was no stipulation for payment of interest during the term. His Honour stipulated the question in that case as follows at 15,843: "As to interest, Mr Lai says that he was always ready, willing and able to pay the $11,200 necessary to discharge the mortgage, but the money was not accepted. However, he did not actually tender the money nor pay it into court, and the practicality of the matter is that he has had the use of that money since 1993. Should he have to pay interest on the principal sum from the date when it should have been repaid?"

In that case his Honour found that the moneys had been advanced on a friendly rather than a commercial basis but that on the evidence the lender had plans as to what she would do with the money to make a return from it upon repayment. His Honour in that case under the principle in Cook v Fowler ordered payment of interest at a rate related to the earning which he accepted she would have made from the money if returned on time. 15 As I have said, the plaintiff's case is, in general terms, that he was not in default because relieved from the obligation to tender by the conversation that took place concerning repayment. The modern principle in this regard is stated as follows in Fisher and Lightwood op cit as follows under the heading "Where Tender Dispensed With": "[32.35] The conduct of the creditor may amount to a dispensation with the tender. A mere claim of more than is due will not have this effect, but if, claiming too much or setting up two different claims, one of which is wrongful, the credit so conducts himself as to show that a tender of the amount properly due would not be accepted, it will be a dispensation: Scarfe v Morgan (1838) 4 M&W 270; 150 ER 1430; Kerford v Mondell (1859) 28 LJ Ex."

In addition to Scarfe v Morgan (1838) 4 M&W 270; 150 ER 1430; and Kerford v Mondell (1859) 28 LJ Ex, another case cited to this effect is The Norway (1864) 2 Br&L 377; 167 ER 408; and see Roscoe's Evidence in Civil Actions (20th ed, 1934) 996 - 997. The principle was similarly stated by Young J in GWH Pty Ltd v Commonwealth Bank of Australia NSWSC 14 December 1994 unreported as follows: "The law of mortgages is that for interest to stop running there must be a proper tender. The tender must be duly made and refused, and if that happens then interest stops running; see Bank of New South Wales v O'Connor (1889) 14 App Cas 273 and Webb v Crosse [1912] 1 Ch 323. The conduct of the mortgagee may in appropriate cases amount to a dispensation with the tender. A mere claim of more than is due will not have this effect, as a general rule, unless the creditor conducts itself in such a way to show that a tender of the amount properly due would not be accepted; see for instance Scarfe v Morgan (1838) 4 M and W 270; 150 ER 1430.

The onus is on the cross-defendants to show that had the amount due under Double Bay been paid it would have been accepted and the mortgage at least been discharged so that the re-financing institution could have got its charge. The evidence is a bit equivocal. I think that I am not able to find that there was a proper tender or that the tender was dispensed with, but that on taking accounts between the mortgagor and the mortgagee the Master must take into account any difference in the interest rates that were payable under the contractual mortgage and which would have been payable in the market generally or under the finance which was available from the other financial house. This is because the conduct of the mortgagee in insisting that provision be made for the Lloyds debt stopped the mortgagor obtaining cheaper finance, if that be the case. If there is no evidence that the substitute finance was at a cheaper rate, then, of course, the contractual rate will apply."

His Honour added in Challenge Bank Ltd v Hodgekiss NSWSC 17 August 1995 unreported: "To show dispensation from the requirement to tender it must be established by the mortgagor that on the balance of probabilities, had the tender been made, it would have been refused." 16 On the basis of this authority a good deal turns on the effect to be put on the conversation making the offer to repay $30,000 and Mr George's response. I have already indicated in [9] that I accept those elements of the conversation. Mr George, in cross examination, claimed clear recollection of this part of the conversation and where it occurred, namely, the pub on the corner of Elizabeth and Cleveland Streets. Cross examined, he also adhered to the terms of the conversation as stated in his affidavit. He made no claim that he had responded that $32,000 rather than $30,000 was the amount secured under the mortgage. He agreed that he took the first $30,000 to be a reference to the original advance of $32,000. He did say, when asked what he would have done had $32,000 been proffered, that that was "hypothetical". However, in view of what occurred thereafter, I do not regard it as hypothetical. In any event, whatever was in Mr George's mind concerning it, on his own evidence as to his utterances, his response to the suggestion that he should be paid $30,000 and Mr Coughlan should have his mortgage discharged and his deeds returned, his response was, in effect, that he would retain the mortgage and the deeds until $60,000 was paid. Mr Freeman, of counsel for Mr George, has put to me that that was not the intent of Mr George's words. However, it appears to me to be the natural construction of the words by an objective observer. That that is what, in reality, was in Mr George's mind at the time is in my view confirmed by the attitude conveyed through his solicitors in 2001 when $32,000 was proffered in the form of unimpeachable cheques that he would accept nothing to discharge the mortgage but $60,000 and compound interest calculated at 7.5 percent. 17 On this basis I have come to the conclusion that this creditor so conducted himself as to show that a tender of the amount properly due would not be accepted and the tender by Mr Coughlan on 31 August 1998 was dispensed with. If, perchance, I am wrong and the conversation was after 31 August, then the obligation to tender was dispensed with from the time of the conversation. 18 At one stage it was suggested that if a tender were not accepted, in general terms the money must be put aside and kept so it was available for payment to the creditor at any time: see McPherson v Summerville (1905) 6 SR (NSW) 1 at 4 per A H Simpson CJ in Eq. However, this has recently been said by Hodgson J (as his Honour then was) not to be a fixed rule: Kitson v Goodge (1997) 7 BPR 15,173 at 15,177. Since tender was not required in this case, I do not think that general rule in any event applies. Nor do I accept, as was pressed on me on behalf of Mr George, that I should find that Mr Coughlan would not have been able to find the money had $32,000 been called for by Mr George between the end of August 1998 and November 2001 when it was, in fact, paid. Mr Coughlan had some money in the bank, some money with his solicitor, kept money in cash and was able to pay the money in 2001. 19 Mr Cox put to me that the same result could be reached by another route, namely, that the conversation in 1998 that I have referred to amounted to a repudiation of the contract by making it plain that Mr Coughlan would not discharge the mortgage as obliged by its terms if $32,000 were tendered and that Mr Coughlan was thereby released from his obligation of tender. It is clear that Mr Coughlan, even if released from the contractual obligation to repay, would be obliged to proffer the amount advanced in order to obtain a discharge of the mortgage, as he did proffer the amount in November 2001. Mr Cox also submitted that because of dicta in Hungerfords v Walker (1990) 171 CLR 125 there was no room, on the facts of this case, for holding that damages were recoverable, because it could not be said to have been in the contemplation of the parties that interest would in any circumstances have been payable, bearing in mind the nature of the transaction. In view of the conclusion that I have come to, I do not need to determine this argument. 20 The result of the conclusions that I have come to is that the mortgage should be discharged upon the tender of $32,000 without the payment of any interest in respect of any period either before or after the tender of the cheques on 27 November 2001. 21 In so far as Mr Freeman has submitted that the tender at that time should have included some sum by way of interest; that failure to do so meant that the tender was ineffective; and that interest should therefore continue to be payable after 27 November 2001, there are two answers. The first is that by reason of the dispensation with the requirement for tender, no interest should be awarded up to that time. Secondly, even if there were a general conclusion that some interest should be awarded up to that time, that interest would be by way of damages assessed under the principle in Cook v Fowler supra and it is hard to see how, before the assessment, a sum could be determined which would be appropriate to tender as the amount of interest. 22 Short minutes of order should be brought in to give effect to the decision to which I have come.

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