The claim
1 By an amended statement of claim filed on 10 May 2006, the plaintiff, ("Mr Morton") claims the sum of $30,000, together with interest, from the defendants (individually, "Mr Roman Elgin" and "Mr Marcus Elgin"). The claimed sum is alleged to be the balance of the principal and interest owing by the defendants under the terms of a written agreement entitled "Loan at Call Agreement" dated 6 April 1990 ("the Loan Agreement").
2 Mr Morton claims to have lent the total sum of $40,000 to the defendants, as individuals: $25,000, on 9 January 1990, under an oral agreement made on the same day and an additional $15,000, on 31 January 1990, under a further oral agreement made that day.
The defences and counterclaims
3 By their amended defences and counterclaims filed on 15 May 2006, the defendants deny liability. They deny that the alleged oral agreements on 9 January and 31 January 1990 were made. Further, they deny receiving the monies allegedly advanced to them.
4 The defendants allege that, under the terms of a loan agreement made in about late December 1989 and early January 1990 between Mr Morton and the company, Roman Elgin & Associates Pty Ltd ("REA"), Mr Morton had agreed to advance to REA the amount of legal costs and disbursements in relation to the conduct of a building arbitration then in progress between REA and a third party or, alternatively, to pay those costs and disbursements on its behalf. They allege that, on 15 January 1990, in accordance with that agreement with REA, Mr Morton paid the sum of $13,000 to the Master Builders Association of Victoria ("the MBAV"), by way of a deposit of arbitration fees for and on behalf of the company.
5 The defendants also deny that they executed the Loan Agreement. They maintain that, on 6 April 1990, they signed a one page document, in letter form, provided to them by Mr Morton. They allege that Mr Morton did not provide them with a copy of the document. Alternatively, they allege that, if it was the Loan Agreement which they executed, then they signed it, as a result of a misrepresentation by Mr Morton, in the mistaken belief that they did so on behalf of REA and that it embodied the terms of the earlier alleged oral loan agreements between Mr Morton and REA.
6 Alternatively, the defendants submit that the Loan Agreement records a loan to them, as individuals, repayable upon demand and that Mr Morton's claim is, therefore, statute barred under s 5(1)(a) of the Limitation of Actions Act 1958.
7 The defendants also contend that, in any event, the Loan Agreement was not supported by consideration. They go on to argue that, even if the Loan Agreement was executed by them and was supported by consideration, Mr Morton made demands for payment of the debt in 1996 and 1997, with the effect that his claim is statute barred.
8 The defendants further allege that they made an additional repayment of $10,000 in relation to the debt, not taken into account in the calculation of the claim. Then, they argue that the term of the Loan Agreement purporting to oblige them to pay interest on the outstanding principal is void for uncertainty and severable. If it is not void, then it does not require them to pay compound interest.
9 The defendants seek orders by counterclaim rectifying the Loan Agreement to reflect the agreement they contend was made between Mr Morton and REA or, alternatively, rescission of the Loan Agreement for common or unilateral mistake and any necessary consequential orders.
The credit of witnesses
10 The conflicting accounts of relevant events given by Mr Morton, on the one hand, and the defendants and their family members, on the other, makes the issue of credit significant in this case.
11 I note at the outset that, on balance, when they supplied differing versions of events, I found Mr Morton's evidence to be more persuasive that of Mr Marcus Elgin, Mr Roman Elgin, his wife, Mrs Ludmilla Elgin, and their children, Mrs Miriam McCrohan and Mr John Elgin.
12 Notwithstanding some inconsistencies between his account of events in an affidavit sworn in support of a summary judgment application and his evidence to the Court, Mr Morton impressed me as a truthful witness, prepared to acknowledge the existence of facts which might not support his case and to make concessions against interest. Significantly, he produced documentary evidence which, in my view, supports his claim. The defendants, in contrast, tendered no convincing relevant documents to back up their allegations. I did not find them or their witnesses as persuasive as Mr Morton. Their conflicting version of events strikes me as improbable, generally and in the context of the documentary evidence.
13 I will return to some specific matters of credit in the course of my reasons.
The facts
14 I am satisfied as to the following facts, some of which were contentious whilst others were common ground.
The REA building dispute and arbitration
15 REA was a construction company established by Mr Roman Elgin in 1983 which was subsequently wound up. By late 1989, REA was engaged in a building dispute with Verl-Inns Pty Ltd ("Verl-Inns"). Verl-Inns' failure to make a final payment of some $800,000, allegedly owing to the company, was causing REA severe financial difficulties. The parties were involved in an arbitration hearing which had run for two weeks, before an adjournment in late 1989. REA required funds for the continuation of the arbitration. It was not able to obtain the necessary monies from its bankers, the ANZ Bank.
Mr Morton's involvement in the building arbitration
16 At all relevant times, Mr Morton acted as REA's accountant, through his company, Norman J. I. Morton Pty. The company also provided accountancy services to each of the defendants personally, in relation to the preparation of their taxation returns. By January 1990, Mr Morton's company had not been paid by REA for accountancy fees in relation to services provided during the previous seven months. Mr Morton had been involved in the preparation of the financial aspects of REA's claim against Verl-Inns. He had worked hard and was enthusiastic about the prospects of REA succeeding in its claim.
17 Mr Morton had some experience of the building industry, having conducted a construction business between 1975 and 1990. The defendants contend that they placed great reliance on Mr Morton's opinion as to their prospects of success in the arbitration. I do not accept their evidence as to the extent of that reliance in relation to matters other than the financial aspects of REA's claim against Verl-Inns. I am not satisfied that they would have relied upon Mr Morton's advice with regard to legal or tactical aspects of the arbitral process because REA was represented by its own solicitors and by counsel in the arbitration and the defendants themselves, its directors, appeared to me to be intelligent, competent and forthright people.
18 Mr Roman Elgin was, at the time, an educated man, with experience in the construction industry. He had come to Australia as a displaced person, at the age of 18, in 1948. He had qualified as a civil engineer with expertise in concrete repair. He had been a member of the armed forces and had worked in the construction industry, before setting up REA in 1983. REA's business specialised in work under Defence Department contracts. Mr Roman Elgin and his family also ran a farm of approximately 1,300 acres near Yea, Victoria, upon which they grew crops, cultivated raspberries and ran sheep.
19 Mr Marcus Elgin was also well educated and had a personal history of achievement which, in my view, suggested independence of mind. He had been trained as an officer at the Royal Military College, Duntroon, obtaining an Arts degree between 1980 and 1983. Thereafter, he had served as an army officer and had held the rank of Lieutenant, before leaving the army after an accident. Whist recuperating in 1986, he ran the Yea family farm. Mr Marcus Elgin had been a director of REA from 1985, but had only become involved in its activities as its "Contracts Manager" in 1987. I note that, in my view, Mr Marcus-Elgin's abilities are further evidenced by his subsequent career as an agribusiness consultant, advising farmers who were in financial difficulties in the early 1990s. At the time of trial, he held the office of president of the Naval and Military Club and his qualifications now include not only BA(Mil) but also CPAg (Certified Practising Agriculturalist), AFAIM (Associate Fellow of the Australian Institute of Management), MAICD (Member of the Australian Institute of Company Directors) and MAIAST (Member of the Institute of Agricultural Science and Technology).
Events on 9 January 1990
20 There is a dispute between the parties as to what happened on 9 January 1990. In so far as accounts differ, I accept Mr Morton's account and make the following findings.
21 Mr Morton had not been to the REA office for some three weeks when, on 9 January 1990, the defendants came to his home office in Kew and requested a loan in the sum of $25,000, to fund the adjourned building arbitration. They said words to the effect that they were in financial difficulties and could not obtain the necessary funds. Mr Morton was shocked that the defendants had asked him for money and told them so. He explained that he could only make a loan to them as individuals, as he could not lend money to the proprietary company.
22 Although he did not perform accounting work providing any information as to their personal assets and liabilities, Mr Morton knew that Mr Roman Elgin owned the Yea farm and that Mr Marcus Elgin was married to a doctor. I accept his evidence that this knowledge gave him some confidence in relation to the proposed loan to them as individuals. I am satisfied that he agreed to lend the requested amount of $25,000 to Mr Roman Elgin and Mr Marcus Elgin, personally.
23 I note that Mr Morton's witness statement contains some dialogue which is said to represent the effect of the discussion which took place. Notwithstanding his concession, under cross-examination, that the dialogue was a "fabrication", I accept Mr Morton's evidence that the words used set out the gist of the discussions.
24 On 9 January 1990, accompanied by Mr Marcus Elgin, Mr Morton attended what he described as the Kew branch of the RESI-Statewide Building Society which was, by then, the Bank of Melbourne. He withdrew the sum of $8,000 from an account of the company, Norman J. I. Morton Pty, and a further sum of $17,000 from the account of his company, Dakan Pty Ltd. Mr Morton instructed the bank officer to provide him with a bank cheque in favour of Mr Marcus Elgin in relation to each withdrawal. Mr Morton gave the bank cheques to Mr Marcus Elgin, thus advancing a total sum of $25,000 to him and his father, in accordance with their oral agreement.
Events on 31 January 1990
25 On 31 January 1990, Mr Roman Elgin and Mr Marcus Elgin once again attended at Mr Morton's office. Mr Roman Elgin asked Mr Morton to lend him and Mr Marcus Elgin a further sum of $15,000. Immediately after the meeting, Mr Morton attended at the same bank branch where he withdrew money held in the name of Forth Dib Nominees Pty Ltd, the trustee of his family trust. The Forth Dib Nominees Pty Ltd deposit was evidenced by a "certificate of deposit" which Mr Morton surrendered and which was replaced by a new certificate showing a balance of $15,000 less than that shown on the surrendered certificate. Mr Morton directed the teller to draw a bank cheque in the amount of $15,000 payable to Mr Marcus Elgin. He made a note on the deposit certificate: "loan to Marcus Elgin-Stuczynski". He gave the cheque to Mr Marcus Elgin at the branch, thereby making a further loan of $15,000 to Mr Roman Elgin and Mr Marcus Elgin.
26 I accept Mr Morton's evidence that he "parked" the loans in the accounts of Norman J I Morton Pty, listing a loan of $40,000 to "Roman & Marcus Elgin" as a current asset in its balance sheet from 30 June 1993, simply in order to remind himself of the advances he had made to Mr Roman Elgin and Mr Marcus Elgin.
27 I am not persuaded by the defendants' attack on Mr Morton's credit on the basis of his evidence that he accounted for his assets in the books of the various entities over which he had control, moving the assets around at will. Nor am I persuaded by a submission to like effect based upon an argument that Mr Morton's records were in disarray. I am not satisfied that his records were in such a state.
The payment of $13,000 to the MBAV
28 As I have already noted, the defendants contend that the one and only loan made by Mr Morton was made by way of an advance of $13,000, to REA by a direct payment in relation to its costs and disbursements of the building arbitration. The records of the MBAV record a deposit of $13,000 by REA on 15 January 1990, as well as one in the same amount by Verl-Inns. However, I am not satisfied that the deposit attributed to REA was paid by Mr Morton. I am not persuaded by the defendants' submissions that Mr Morton made the payment by way of an advance in accordance with the alleged oral agreement with REA.
29 I accept Mr Morton's evidence that he has never been to the MBAV offices. I am not persuaded by Mr Marcus Elgin's evidence that he accompanied Mr Morton to those offices on 15 January 1990 and that Mr Morton paid a deposit in relation to the costs of the arbitration, in an amount of which Mr Marcus Elgin was not aware, until recently. He maintains that he and Mr Morton drove together, in Mr Morton's car, from REA's Camberwell offices, without discussing the amount of money required to be paid for the continuation of the arbitration. He goes on to assert that no cheque was handed to him and that he is under the impression that Mr Morton made the payment of the sum, which he states he only now knows was $13,000. Yet, Mr Marcus Elgin had a military background and he impressed me as an intelligent and efficient man. He gave evidence[1] that his own money was invested in REA, of which he was a shareholder. I consider it improbable that he would not have been aware of the amount of money being advanced to the company by Mr Morton to fund the arbitration which was so important to REA's survival.
Events on 6 April 1990
30 6 April 1990 was a very significant day for Mr Marcus Elgin and, in particular, Mr Roman Elgin. On that day, the ANZ Bank withdrew its support for REA and decided to appoint a receiver to the company. Mr Roman Elgin and Mr Marcus Elgin had previously approached the firm Ferrier Hodgson, in the hope that REA would be permitted to trade out of its difficulties, under its management. They had been optimistic that, with Ferrier Hodgson's assistance, REA would be able to continue to fight for payment from Verl-Inns through the arbitration process. However, on 6 April 1990, ANZ effectively rejected that option, appointing the accountancy firm, Romanis Cant, as the agent of the mortgagee in possession. The defendants gained the impression on that day that Romanis Cant was not interested in pursuing the arbitration and would wind the company down.
The Loan At Call Agreement
31 On 6 April 1990, Mr Morton was at REA's office. Some time after hearing that Romanis Cant had been appointed by the bank, he drafted a document, by hand, and provided it for typing to REA's secretary. The secretary returned the document, together with a copy, to Mr Morton. I am satisfied that the document she typed is the Loan Agreement, a two page document, the first page of which is in the following form: