Kennedy v Locker

Evidence of the Defendant

1. The defendant's version of how monies came to be advanced was that in December 2005 he wished to purchase some valuable antique items from a Sydney collector. He thought that he could sell some of those items to the National Museum and make a profit. The defendant said to the plaintiff that it was a pity that he didn't have the funds and the plaintiff said that she had the money and she would lend it.
2. The defendant said that on about 16 December 2005 the plaintiff asked him to type a document saying that she had provided $200,000 to purchase the collection, so that she would have some claim to the material in the event that something happened to the defendant. The defendant said that he typed a document, which I will call the "Defendant's Document". It was in the following terms: "That on this 16th day of December 2005, I Neville Locker of Happy Valley Adaminaby NSW, borrowed the amount of $200,000..00 from Esther Anne Kennedy of 9 Baker Street Adaminaby for a period of 12 months. This money to be repaid at the end of the agreed 12 month period of the loan, together with interest due at the rate of 12% per annum calculated from the above date. Security for this loan is by way a lien and first call on all of that collection purchased from Ian Cummins of Sydney 20/12/2005, as shown on the attached list and including the 1863 sterling Silver Campbell candelabra. Signed. (N. Locker) Witness. (E. Kennedy)"
3. The defendant agreed that his signature appeared on the document. The plaintiff said that the signature "E. Kennedy" was not her signature.
4. The contention of the defendant was that while his obligation was to repay $200,000 by 16 December 2006 (a 12 month period), together with interest on that amount at 12% per annum, when he failed to pay that amount on the due date, he had no further obligation to pay any interest on the $200,000.
5. The defendant said that in February 2006 the plaintiff agreed to lend him another $50,000 to purchase further items, and that this happened again in June 2006. There was no written document for those loans. The defendant said that nothing was said about interest and so there was no agreement to pay interest. The defendant's contention was that while he had an obligation to repay these two amounts of $50,000, these were in effect interest-free loans.
6. The defendant gave evidence concerning the purchase of antique items which were for sale. An auction planned for November 2006 was postponed. He said that when the auction was held in April 2007 the prices realised were disappointing and he was not in a position to repay the plaintiff. On 12 September 2007 he made his first repayment of $3,000. Later on he started paying $500 per week. These are the payments referred to in paragraph 8 of the Defence.
7. The defendant said, and the parties agreed, that their relationship was "on the rocks" from about 2010. The defendant said that since 2002 he drank too much. He would drink a bottle of whisky a night on his own at home. Then he might not have a drink for a week. This binge drinking used to happen for one night, and then there would be some days of not drinking, followed by another binge. The defendant said that when he drank in this fashion he would wake up the next morning not knowing what had happened the night before.
8. While the relationship broke down in 2010, the plaintiff remained living in the defendant's home. She told him that she was not leaving until she got her money. It was agreed between the parties that the plaintiff asked the defendant to go to Cooma to see a solicitor to sign a document, but he did not go.
9. There was a two-day auction in May 2015 when the defendant sold his entire collection and raised about $600,000. He paid off his overdraft and some of the debts. He wrote out a cheque for $200,000 to the plaintiff, which she banked.
10. The defendant said that about a week after the auction, the plaintiff said that he still owed another $400,000 because there was 10% compound interest on the money that she lent. The defendant said that he did not remember anything about compound interest and the plaintiff said that she had a document. He asked to be shown the document but the plaintiff refused.
11. The defendant tried to find his version of the agreement (the Defendant's Document) but he could not. He eventually found it and showed it to the plaintiff. He said to her that it did not show anything about compound interest. The defendant said that within two hours the plaintiff had packed up and left Happy Valley.
12. In relation to the Plaintiff's Document, the defendant said that he had never seen it until his solicitor obtained a copy of it. He said that he would not sign anything which provided 10% compound interest. He also said that he did not use the word "epergne" at the time, as he referred to that particular valuable antique as a candelabra. He also pointed out that the word "epergne" was misspelt in the document as "epergn". In relation to the signature of the Plaintiff's Document, the defendant said: "I have no recollection of signing this document. I have looked at the signature. It looks like my signature. If I did sign, I must have been drunk at the time."
13. The defendant's two daughters gave evidence by affidavit and were cross-examined. Ms Buckley gave evidence that the plaintiff had said to her that she was worried she was not going to get her money back and that she never had any written agreement with the defendant. Ms Lynch said that the plaintiff had said to her that she had no documentation and that she had to stay until she got her money back from the defendant.

Cross-examination and Credibility of the Plaintiff

1. The plaintiff was cross-examined about her signature on the Defendant's Document. She asserted that she always signed "E.A. Kennedy" and that she never signed "E. Kennedy". The signature on the Defendant's Document is "E. Kennedy". However, the plaintiff was confronted with a Transmission Application which she had signed after the death of her husband. She signed it "E. Kennedy". The plaintiff acknowledged that she had signed receipts for payments received for accommodation at Happy Valley by signing "A. Kennedy". The plaintiff is known to everyone as Anne.
2. The plaintiff was challenged in cross-examination about her assertion that the early payments by the defendant to the plaintiff were nothing to do with the loan but related to payment for work done in the accommodation business. In view of the concession by her counsel, I make no finding on this issue.
3. The plaintiff said that the defendant was drunk nearly every night, usually consuming a full bottle of whisky. She said that he was not drunk when he signed the Plaintiff's Document. She recalled it being signed one morning at Happy Valley. She said in cross-examination that this could have been in 2016. I later questioned the plaintiff about this, and she said that maybe it was 2007. She said that it was signed in the office at Happy Valley. I had the impression that her answer in cross-examination that the document was signed in 2016 was an unintended slip of the tongue.
4. The demeanour of the plaintiff in cross-examination was argumentative and slightly hostile. I reject the plaintiff's assertion that the signature "E. Kennedy" on the Defendant's Document is not her signature. It looks like her signature, and is a form of signature which she had employed in the past. I find that the plaintiff was not telling the truth about always signing "E.A. Kennedy".
5. The plaintiff was cross-examined about the assertion by both of the defendant's daughters that the plaintiff had said to them that she had no documentation to prove the loan. The plaintiff's response was that she was not willing to, and did not, disclose the existence of a written agreement to the daughters as she did not think it was any of their business. I accept the plaintiff's explanation. It has to be remembered that by the time of the conversations as recalled by the daughters, the relationship between the plaintiff and the defendant was fractured, and the plaintiff was only staying on at Happy Valley under sufferance until she got her money back.

Cross-examination and Credibility of the Defendant

1. The defendant gave evidence in a fairly measured fashion. I reject his assertions that the initial funds totalling $200,000 were to be interest-free after December 2006, just because those words were not specifically in the original document. I also reject his assertions that because nothing was said about interest in relation to the two later advances of $50,000, no interest can be claimed by the plaintiff.
2. My conclusions about these matters are affected by consideration of the documents themselves and the sequence of events.
3. I accept the defendant's evidence about his heavy drinking. He said that he started drinking heavily in 2002 after his wife died. When he drank heavily he often drank a whole bottle of whisky at night and then could not recall the next day what he had done. He said that this did not happen every night, and that sometimes he would go for a week without drinking and then break out again and drink a bottle of whisky during a night.
4. The defendant did not give direct evidence that he was drunk when he signed the document. He simply gave evidence that he could not remember signing the Plaintiff's Document and that if he did he must have been drunk at the time. The defendant was not drunk every night, and indeed on his evidence he was only drunk about one night in seven.

Did the Defendant lack capacity?

1. The Defence did not raise an issue concerning lack of capacity to enter into a contract. However, such a submission was put by counsel for the defendant, based upon the defendant's evidence about his binge drinking.
2. As previously recited, the defendant said in his affidavit: "I have no recollection of signing this document. I have looked at the signature. It looks like my signature. If I did sign, I must have been drunk at the time."
3. The burden of establishing the matters which arise where a person's capacity is affected by alcohol lies upon the parties seeking to avoid the contract - Gibbons v Wright (1954) 91 CLR 423 at 437.
4. The learned authors of Radan, Gooley and Vickovic, "Principles of Australian Contract Law", 4th Edition, LexisNexis, 2018 say the following on the topic: "9.55 A question sometimes arises as to whether a person's contractual capacity is affected by drunkenness. The following is stated in Halsbury's Laws of England on this issue: 'The fact that a party was drunk when he purported to enter into a contract may be a defence to an action on the contract; and it has been said that drunkenness is in this respect on the same footing as unsoundness of mind. It may be that extreme intoxication will so deprive a person of his reason as to render his consent void; but, in many cases the courts have contented themselves with a finding that the contract was voidable. Where drunkenness is not such as to deprive a party of his reason, but merely of his business sense, the contract is at most voidable: generally, equity will not interfere either to avoid or to enforce it; but it will grant relief to the drunken party if he can show that his condition was known to the other party at the time when the contract was made, and that some unfair advantage has been taken of him.' 9.56 Chitty on Contracts suggests that the test of incapacity by way of drunkenness is the same as that for mentally disordered persons, being whether the person was so drunk as not to understand what he or she was doing and whether the other party knew of that condition. Chitty states that a contract may, in such circumstances, on some authorities be voidable at the drunken person's option (and can also be ratified when sober). However, other authorities suggest that equity has a wider jurisdiction to set aside an unfair or unconscientious transaction entered into by a person affected by alcohol. Treitel states that: 'Extreme drunkenness is a defence to an action on a contract if it prevents the defendant from understanding the transaction, and if the claimant knows this. … [However, a] defendant cannot rely on drunkenness which merely blurred his business sense: but such drunkenness is a ground on which equity may refuse to order specific performance. Nor does a party's habitual drunkenness deprive him of contractual capacity but it could be a ground for relief if the other party has taken over the position of guardian or advisor to the drunkard so as to give rise to a presumption of undue influence between them.' 9.57 In the wake of the discussions referred to in 9.55-9.56, in Kurth v McGavin [2007] 3 NZLR 614 at 630 Priestley J said: 'On the basis of those commentaries I consider that the distinction apparent in Halsbury and adopted by Cooke J in Peeters v Schimanski between drunkenness depriving a party of his or her reason on the one hand, and drunkenness which merely deprives a party of his or her business sense on the other hand, remains a valid distinction. But in either circumstance, a prerequisite to granting relief to the drunken party is that the drunken condition must be known to the other party at the time the contract was made: Irvani v Irvani. Importantly, the equitable remedy of specific performance may well be refused in situations where drunkenness of a party is a factor leading to a contract.'"
5. The defendant's assertion is that he cannot recall signing the Plaintiff's Document, and that if he did he must have been drunk at the time. However, the Plaintiff's Document is not itself a loan agreement, but appears to be simply a written acknowledgment signed by the defendant to record what the parties must have orally agreed. Thus for the issue of lack of capacity to arise, the defendant would have to establish that not only was he so drunk that he lacked capacity when the Plaintiff's Document was signed, but that before that he was so drunk that he lacked capacity when the oral agreement was reached. Further, for reasons set out below, I have come to the conclusion that the defendant typed the Plaintiff's Document, so on his case he would have to show he was drunk then too.
6. The defendant said that he would not sign anything which provided for 10% compound interest. However, if he reached agreement to pay 10% compound interest when he was drunk, that is really a matter of drunkenness depriving him of business sense, rather than depriving him of his reason.
7. On a probabilistic basis, it is hard to accept that the defendant must have been so drunk on three occasions when he agreed orally to pay 10% compound interest and later prepared and signed a document recording that agreement. I have accepted the defendant's evidence that he was a binge drinker of a bottle of whisky about once a week, so there were six nights when he was sober every week and seven lots of daylight hours when he was sober.
8. The defendant on his own case had already agreed to pay interest at 12% per annum. The defendant had borrowed $300,000 from the plaintiff, and by the time of the Plaintiff's Document, the defendant was confident that he would be able to repay the loans by selling the antiques at auction. The last two payments of $50,000 each had never been recorded in writing, and it is probable, in my view, that the plaintiff did ask the defendant to prepare and execute a document to record those borrowings, and the agreement reached in relation to them. The defendant, in agreeing to 10% compound interest, was probably of the view that the loan would not be for a long term, as he was putting the antique collection to auction in the second half of 2006.
9. The law says that as a prerequisite to granting relief to a drunken party, the drunken condition must be known to the other party at the time the contract was made. There was no evidence of this in the present case, and nor was it even an allegation put to the plaintiff in cross-examination. The plaintiff said that the defendant was not drunk when he signed the document, and that further, when he was drunk, she used to say to him: "Don't speak to me until you are sober". That has the ring of truth about it, and was not disputed by the defendant in his evidence.
10. The fact that the defendant cannot recall signing the document is not evidence that he was drunk so as to lack reason and capacity when he signed it. The degree of binge drinking by the defendant in 2005 and 2006 would mean there were probably a lot of things that he said or did in those days that he could not remember because of his extreme drunkenness. That is not to say that he lacked capacity when he said or did those things, simply that he had no memory of doing them.
11. There is a certain logic to the Plaintiff's Document, and a certain logic to the underlying agreement, in that it correctly records the advances and the dates on which the advances were made, it records that such amounts are repayable on demand, and it provides additional security over and above the security provided for the initial loan of $200,000.
12. I reject the submission that the defendant lacked contractual capacity when: he agreed to pay compound interest at 10% per annum; when he typed out the Plaintiff's Document; and when he signed the acknowledgment contained in the Plaintiff's Document.

Consideration of the Plaintiff's Document and the Defendant's Document

1. I accept that the Defendant's Document was created immediately prior to the advance of amounts totalling $200,000, commencing in December 2005. The signature on the document of "E. Kennedy" I find is the plaintiff's signature. However, that document could not be described to be a loan agreement, as the plaintiff has signed in the capacity of a witness to the signature of the defendant. However, I regard the document as a confirmation of a verbal agreement in relation to the first $200,000 and an admission by the defendant that when he borrowed the sum of $200,000 he was obliged to pay it back in 12 months together with interest at 12% per annum. He granted a lien over the collection purchased from the Sydney collector. The evidence on both sides is that the purpose of the loan was to enable the defendant to purchase the items from the Sydney collector.
2. The defendant gave no evidence about any conversation he had with the plaintiff regarding a date for repayment of the $200,000 or about a rate of interest. However, the document is an admission against the defendant's interest, and I find that it records the contemporaneous agreement of the parties reached in December 2005 that the initial $200,000 was lent for a period of 12 months and that interest of 12% per annum was to be paid upon the loan.
3. In relation to the Plaintiff's Document, that too is not a loan agreement. It is signed by the defendant and the plaintiff has signed as a witness. However, it purports to be a written confirmation of an agreement reached between the parties, which was created well after the December 2005 agreement.
4. There are some curious idiosyncrasies in relation to the typescript in the Plaintiff's Document and the Defendant's Document, which lead me to find they have been typed by the same person. Firstly, each dollar figure in the documents has a double fullstop between the dollars and the cents eg "$50,000..00". Secondly, after the word "Signed" and the word "Witness" on each document appears a fullstop. That is unusual, as most people would either leave a blank after those words or would put a colon. The defendant says that he typed the Defendant's Document. The plaintiff says that the defendant typed the Plaintiff's Document. The defendant had a computer and the plaintiff did not. The defendant had the skills to at least type on a computer and the plaintiff did not. For those reasons I find that the defendant typed the Plaintiff's Document.
5. The document correctly recites the five advances and the dates of each advance. They total $300,000.
6. The document is undated, but it must have been created, at the earliest, on 7 July 2006, which was the date of the last recorded advance of $50,000. Security was given by that document, over more antiques than were covered by the Defendant's Document. The document specifically stated that the money was repayable on demand and that interest was payable at the rate of 10% compounding annually.
7. How those terms came about is difficult to work out on the evidence. I do not accept the plaintiff's evidence that the three initial payments totalling $200,000 were made upon her version of an oral agreement to pay 10% compound interest. Nor do I accept that when the first further amount of $50,000 was advanced, there was any agreement at that point to pay 10% compound interest.
8. However, the Plaintiff's Document, being signed by the defendant, is an acknowledgement by him that at a date in 2006 the parties reached an oral agreement, then recorded in the Plaintiff's Document, that the $300,000 would carry interest payable at the rate of 10% compounding annually.
9. In effect, the parties discharged the agreement recorded in the Defendant's Document, and replaced it with the agreement recorded in the Plaintiff's Document.
10. In summary, I find that the plaintiff and the defendant reached an oral agreement in December 2005 in relation to the initial advance of $200,000 which is recorded in the Defendant's Document. I find that when the Plaintiff's Document was created (which must have been in or after July 2006), the parties reached an oral agreement recorded in that document that the $300,000 would be repayable on demand and would carry interest payable at the rate of 10% compounding annually.
11. There is no direct evidence about the date on which the parties made the oral agreement which was then reflected in the Plaintiff's Document. I have already recited that logically it must have been no earlier than 7 July 2016. I find that the Plaintiff's Document came about because of the request made by the plaintiff for the agreement reached to be put in writing. This was probably discussed at the time of the July 2006 advance. I find that 7 July 2006 was the date of the oral agreement which changed the interest rate from 12% to 10% compound interest.

Findings of Fact

1. I make the following findings of fact.
2. In December 2005 the defendant indicated to the plaintiff that he needed money to purchase antique items which he hoped to re-sell at a profit.
3. The plaintiff verbally offered to lend $200,000.
4. The defendant verbally agreed to repay this amount in 12 months together with 12% interest.
5. The defendant verbally agreed to give the plaintiff security over the collection of antique items which he proposed to purchase from a Sydney collector.
6. This agreement was recorded in a document typed by the defendant, signed by him and witnessed by the plaintiff (the Defendant's Document).
7. In pursuance of that agreement the plaintiff advanced to the defendant the following amounts: 1. $50,000 on 16 December 2005 2. $100,000 on 23 December 2005 3. $50,000 on 5 January 2006
8. In March 2006 the defendant wished to purchase further antique items and the plaintiff verbally agreed to, and did, lend another $50,000. Nothing was said concerning the term of such loan or the interest due.
9. In July 2006 the defendant wished to purchase further antique items and the plaintiff verbally agreed to, and did, lend another $50,000.
10. In 2006 the parties orally agreed that the loan of $300,000 would be repayable on demand, and would carry compound interest at 10% per annum.
11. At a time which was probably early July 2006, the defendant typed a document to record all five payments to him by the plaintiff, which now totalled $300,000 (the Plaintiff's Document).
12. That document recorded that he had agreed the $300,000 was repayable on demand and that interest was payable at the rate of 10% compounding annually.
13. The defendant granted security being a first call on the sale of movable items in his collection, specifically horse-drawn vehicles, firearms, convict and bushranger material including Bathurst/Berrima convict jacket and the 1863 Campbell silver presentation epergne.
14. The defendant had capacity to reach the oral agreement, type the Plaintiff's Document and sign it.
15. The document was signed by the plaintiff as a witness to the signature of the defendant.
16. The document confirmed an obligation on the defendant to repay $300,000 to the plaintiff on demand, and to pay interest at 10% compounding.
17. The defendant made all of the payments referred to in paragraph 8 of the Defence, and all of those payments were referable to partial repayment of the advance of $300,000 by the plaintiff to the defendant. Those repayments commenced on 12 September 2007 with a payment of $3,000 and concluded on 15 June 2015 with a payment of $200,000. The agreed total of those repayments was $313,400.

Is the claim statute barred?

1. Both the initial agreement of the parties in December 2005, and the later agreement of the parties in the second half of 2006, was to the effect that the loan was repayable on demand. Where a loan is repayable on demand, the lender's cause of action 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 the receipt of the money - Ogilvie v Adams [1981] VR 1041 at 1043; Chidiac v Maatouk & Anor [2010] NSWSC 386.
2. The effect of these authorities is that, absent s 54 of the Limitation Act 1969 (dealt with below), the claim of the plaintiff would have been statute barred six years after the date of each of the five payments, the latest of which was on 7 July 2006. As previously recited, the Statement of Claim was not filed until 4 May 2017, nearly 11 years after the last advance.
3. However, counsel for the plaintiff relied upon s 54 of the Limitation Act 1969 which provides as follows: "Confirmation (1) Where, after a limitation period fixed by or under this Act for a cause of action commences to run but before the expiration of the limitation period, a person against whom, (either solely or with other persons) the cause of action lies confirms the cause of action, the time during which the limitation period runs before the date of the confirmation does not count in the reckoning of the limitation period for an action on the cause of action by a person having the benefit of the confirmation against a person bound by the confirmation. (2) For the purposes of the section: (a) a person confirms a cause of action if, but only if, the person: (i) acknowledges, to a person having (either solely or with any other persons) the cause of action, the right or title of the person to whom the acknowledgment is made, or (ii) makes, to a person having (either solely or with other persons) the cause of action, a payment in respect of the right or title of the person to whom the payment is made, … (4) An acknowledgment for the purposes of this section must be in writing and signed by the maker."
4. Counsel for the plaintiff submitted that the Plaintiff's Document, created in, as I have found, the second half of 2006, was an acknowledgment within the meaning of s 54(2)(a)(i). He also submitted that each of the payments, as set out in paragraph 8 of the Defence, was a payment in respect of the right or title of the plaintiff within the meaning of s 54(2)(a)(ii).
5. I accept both of those submissions. In particular, the multiple payments made over the years between 12 September 2007 and 15 June 2015 mean that the plaintiff's claim for both principal and interest has been brought well within time.
6. I therefore find that the plaintiff's claim is not statute barred.

Conclusion

1. I find that the plaintiff is entitled to judgment against the defendant, upon the basis that the defendant was obliged to repay to the plaintiff a principal sum of $300,000 and interest at 10% compounded annually. I find that the defendant is entitled to credits for all of the payments particularised in paragraph 8 of the Defence, plus an additional $500, totalling $313,400.
2. During submissions, it was recognised by both counsel that depending on the factual findings I made, there would need to be a calculation of the amount actually due by the defendant to the plaintiff, if I found in favour of the plaintiff. I will give the parties the opportunity to attempt to agree on such a calculation.

Orders

1. My orders are: 1. Judgment for the plaintiff against the defendant in an amount to be agreed or assessed. 2. Direct the parties to confer and attempt to agree upon the amount due by the defendant to the plaintiff, in accordance with the reasons set out in the judgment. 3. Order the defendant to pay the plaintiff's costs. 4. List the matter for further mention or hearing on a date convenient to counsel.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 March 2018