Plaintiff v Defendants

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:

"LOAN AT CALL AGREEMENT

This document is dated the 6th day of April, 1990 and is to acknowledge the receipt of loan monies by Roman Elgin-Stuczynski and Marcus Elgin-Stuczynski, both of 'Fernbank', Molesworth, in the State of Victoria, hereinafter referred to as the Borrowers of the one Part; and Norman James Ian Morton, of 199 Barkers Road, Kew, in the State of Victoria, hereinafter referred to as the Lender, of the second Part; whereby the Lender has advanced to the Borrowers the sum of Forty Thousand Dollars ($40,000.00) in total as a private loan, comprising Twenty Five Thousand Dollars ($25000.00) on the 9th January, 1990 and Fifteen Thousand Dollars on the 31st January, 1990, for which the Borrowers hereby assume joint and several responsibility for repayment, together with accrued interest for the period of the loan, at the rate of interest charged by the Commonwealth Bank of Australia for overdrafts in excess of One Hundred Thousand Dollars ($100,000.00).

The loan is subject to repayment on demand by the Lender, giving to the Borrowers, seven (7) day's (sic) notice of requirement to repay the loan together with all outstanding interest in accordance with the above provisions.

The Borrowers further jointly and severally acknowledge and assume personal responsibility for the payment of all invoices rendered by the Lender in his capacity as accountant to Roman Elgin & Associates Pty. Ltd. so as to include those invoices unpaid as of this date and further for those invoices which may be rendered to Roman Elgin & Associates Pty. Ltd. in the future."

32 Mr Morton took the Loan Agreement into Mr Roman Elgin's office and made a statement to the effect that he thought it time that the loans he had made to Mr Roman Elgin and Mr Marcus Elgin be regularised and that Mr Roman Elgin should look at the Loan Agreement. He handed the Loan Agreement to Mr Roman Elgin. Mr Marcus Elgin was present in the room with Mr Morton and Mr Roman Elgin before Mr Morton subsequently left it, to obtain a witness to the execution of the document, leaving the document with the defendants. Mr Morton returned with Mr Geoffrey Grant, an engineer employed by REA. Mr Morton saw Mr Roman Elgin and Mr Marcus Elgin look at the document before each signed it in the presence of Mr Grant.

33 The second page of the Loan Agreement, which has been stapled to the first, bears the signatures of Mr Roman Elgin, Mr Marcus Elgin and Mr Morton and that of Mr Grant as the witness to each. Each of the signature clauses follows the form of that relating to Mr Roman Elgin:

"Signed by the said Roman Elgin-

Stuczynski in the presence of:

[signature of Geoffrey Grant] [signature of Roman Elgin]

----------------------------------------- --------------------------------

Witness "

34 I am not persuaded by the evidence of Mr Roman Elgin or that of Mr Marcus Elgin to the effect that Mr Morton presented them with a one page document in the form of a letter, on his company's letterhead, and requested that they sign it, representing that it embodied the terms of the alleged agreement between him and REA

35 I reject the defendants' evidence to the effect that, because they were in the habit of signing documents presented to them by Mr Morton, whom they trusted implicitly, they did not read the document placed before them. Neither the secretary nor the witness, Mr Grant, was called to give evidence contradicting that of Mr Morton. I accept his version of the events which occurred on 6 April 1990. I accept that at the time of its execution by the parties and the witness, Mr Morton completed the date on the first page of the document, inserting the handwritten "6th", and wrote the number "2/" in the bottom right hand corner of the first page. Mr Morton kept one copy of the agreement and provided Mr Roman Elgin and Mr Marcus Elgin with the other. No copy of the alleged letter was produced and it was conceded by each of the defendants that they had never requested production of the letter, notwithstanding their allegation that they had not been provided with a copy.

36 In my view, the defendants' subsequent behaviour supports Mr Morton's account of events on 6 April 1990. Mr Morton prepared accounts in relation to REA for the period from 1 July 1989 to 6 April 1990. There was no reference in the accounts to the alleged loan to the company by Mr Morton. There was no evidence of any dispute as to the accuracy of the accounts by Mr Roman Elgin or Mr Marcus Elgin.

37 Even when, subsequently, in early February 1996, Mr Marcus-Elgin received a letter from Mr Morton referring both to "the joint obligation of yourself and Roman concerning the unpaid balance of my loan to you both" and to the "Loan Agreement prepared on 6 April 1990", Mr Marcus Elgin did not contact Mr Morton to dispute the existence of the Loan Agreement or to assert that he had signed a different document. He did not request a copy of the "Loan Agreement" to which Mr Morton had referred.

The April 1995 payment of $10,000 to Mr Morton

38 In 1991, aged 62, Mr Roman Elgin went to work in Saudi Arabia, where his expertise in relation to concrete repair was in demand. Mr Roman Elgin and his wife, Mrs Ludmilla Elgin, were in dire financial straits at the time he left for Saudi Arabia. Mrs Elgin was then still attempting to run the Yea property, with the permission of the bank.

39 Mrs Ludmilla Elgin joined her husband in Saudi Arabia some two years later. They remained in Saudi Arabia for about ten years.

The alleged further repayment of $10,000

40 Mrs Ludmilla Elgin gave evidence that, early in 1993 during a trip back to Australia, of her own initiative, she made a payment of $10,000 to Mr Morton. The payment was allegedly made from funds received by her as compensation for a motor vehicle accident.

41 Mrs Elgin said that she telephoned Mr Morton, informing him of her intention to pay him the sum of $10,000. They agreed that the money would be paid in cash and Mr Morton invited her to his home for a cup of coffee. She claims to have gone to the Toorak branch of the Westpac Bank, with her daughter, Mrs McCrohan, and two grandchildren. She withdrew $10,000 from her business account, taking the money in cash. With her daughter and grandchildren, she proceeded to Mr Morton's home where she gave him the money in an envelope.

42 There was no documentary evidence of the withdrawal. Mrs Elgin said that she could not remember whether she received a receipt from Mr Morton, but doubted that she had been provided with one. She told the Court, under cross-examination, that the business account from which she withdrew the money was one for which she received statements, but that she had not retained the statements up to the time of trial.

43 No documents were produced by the Westpac Bank in response to a subpoena, issued by the defendants, seeking the production of documents described as:

"All documents dated between 6th April, 1990 and 6th April, 1996 held by the Bank which relate to an account with the Corporation in the name of Ludmilla Elgin-Stuczynski or Ludmilla Elgin held at a branch of the Corporation situated in Toorak Village, Toorak. Evidence of a cash withdrawal or withdrawals against the said account or accounts in the amount of $10,000 or in amounts exceeding the amount of $10,000."

44 The Westpac representative, answering the subpoena, gave evidence to the effect that bank records relating to a cash withdrawal would have been disposed of within seven years. However, it was his evidence that, if the account was one for which statements were provided, records would be available from the date upon which the account was opened. If the account was a passbook account, there would be no such record.

45 Mrs Elgin stated that, when she later informed Mr Marcus Elgin and her husband of the payment, they were furious that she had not discussed the matter with them. According to her, they stated that they did not owe Mr Morton anything. They told her that "REA and the receiver took care of it all, that's the risk he took".

46 Mrs McCrohan also gave evidence about the visit and the alleged payment to Mr Morton which she said had taken place in about mid 1993. In her witness statement, which she affirmed in the witness box, Mrs McCrohan claimed that her mother went into a Toorak branch of a bank alone and returned to the car, before they drove to Mr Morton's house. In her oral evidence, under examination in chief, she said that her mother told her that she was withdrawing $10,000. She claimed to have gone to the bank with her mother, to have been present when "they" put the money into a white envelope and to have seen her mother put the envelope into her bag[2].

47 I am not satisfied that the alleged payment was made. I found the evidence of each of Mrs Elgin and Mrs McCrohan unconvincing. The absence of documentary evidence supporting their accounts is significant. Mr Morton impressed me as a meticulous man and I think it unlikely that he would have received $10,000 in cash, without giving a receipt for the payment. There is no subsequent reference to the payment in his letters to Mr Marcus Elgin or to Mr Roman Elgin. They made no response to any correspondence alleging that the 1993 payment was made. There are no documents from the Westpac Bank evidencing the transaction, notwithstanding that Mrs Elgin described her business account as one in relation to which the bank had provided her with statements.

48 The alleged reaction of Mr Roman Elgin to the news of the payment is also apparently inconsistent with what must have been his subsequent direction to Mr John Elgin to make a payment of $10,000 to Mr Morton in 1995.

The 1995 repayment of $10,000

49 On his own account, Mr Roman Elgin had a very successful career as a concrete repair engineer in Saudi Arabia. Eventually, he was in a position to send funds back his sons in Australia for payment to creditors.

50 Some time before 26 April 1995, Mr Roman Elgin telephoned his son, Mr John Elgin, informing him that he wished Mr John Elgin to make a payment to Mr Morton. He would send the money to Citibank and he wanted his son to withdraw it to pay Mr Morton in cash. The money was transferred to Mrs Ludmilla Elgin's Citibank account, to which Mr John Elgin, Mr Marcus Elgin and she were signatories. Following his father's instructions, Mr John Elgin rang Mr Morton and informed him that he would be making a payment of $10,000 to him.

51 On 26 April 1995, Mr Roman Elgin paid Mr Morton the sum of $10,000 in part payment of the debt under the Loan Agreement when Mr John Elgin brought the money, withdrawn from the nominated account, in cash and in a brown envelope, to Mr Morton's office.

52 Mr Morton typed a receipt which he handed to Mr John Elgin, after receiving the payment. The receipt was on the letterhead of Norman J. I. Morton Pty and in the following terms:

" RECEIPT

RECEIVED THE SUM OF $10,000 (ten thousand dollars) FROM ROMAN ELGIN-STUCZYNSKI AND MARCUS ELGIN-STUCZYNSKI, BEING PART PAYMENT OF LOANS MADE TO THEM BY NORMAN JAMES IAN MORTON IN JANUARY, 1990.

THIS TWENTY-SIXTH DAY OF APRIL, ONE THOUSAND, ONE HUNDRED AND NINETY FIVE.

(SIGNED)

NORMAN J I MORTON."

53 Mr John Elgin conceded that Mr Morton typed a receipt in relation to the payment and handed it to him. He did not go so far as to say that the copy receipt in evidence was not a copy of the document he received. However, he expressed the view that he would have expected the receipt to acknowledge a payment by him, rather than from his father and brother. He thought he would have noticed the reference to them as the providers of the $10,000. He did not produce any other document as the actual receipt.

54 I am not persuaded that Mr John Elgin received a different receipt from Mr Morton. I accept Mr Morton's account of events relating to the payment and am satisfied that the receipt in evidence was a copy of that provided to Mr John Elgin by Mr Morton on 26 April 1995, the date of the payment.

55 On 27 April 1995, Mr Morton placed the cash in the brown envelope in a safety deposit box at his bank.

56 Mr Morton continued to provide accountancy services to companies associated with the Elgin-Stuczynski family. However, on 3 November 1995, Mr John Elgin wrote, notifying Mr Morton of the decision to transfer the business of their companies to the firm Romanis Cant, which had been instructed to try to "resurrect" REA. The letter acknowledged the "length and depth of the loyalty" Mr Morton had shown the family over the years, thanking him for his "advice, help, forbearance and kindness".

The 31 January 1996 letter

57 Almost three months later, on 31 January 1996, Mr Morton wrote to Mr Marcus Elgin in the following terms:

"Dear Marcus

You will no doubt appreciate that it is necessary for me to remind you of the joint obligation of yourself and Roman concerning the unpaid balance of my loan to you both, which is now becoming of real concern to me.

If I could afford it I would not be so concerned about it, however this is not the case and because of substantial expenditure recently and expected, it is a necessary and right time for me to bring to you a greater sense of obligation and urgency as to repayment. When you needed help, I responded immediately and it would be appreciated if you and Roman would now respond to my needs, to arrange to settle the balance outstanding in a more specific and determined way.

The balance of the loan outstanding is now $83,192 as at the end of January, 1996 with an additional $15,700 for unpaid accounts for services rendered to Roman Elgin & Associates Pty Ltd etc up to April 1990, for which an obligation to pay was also included in the Loan Agreement prepared on 6 April 1990. This is after the $10,000 part payment received by me from Roman in April 1995.

Can you believe it is over (6) years since the terrible business started!

I urge you to discuss this matter with Roman and to give it the attention it requires. As the interest is currently adding a further $10,000 or so each year to the amount outstanding, the problem will soon grow to unmanageable proportions.

I would be grateful if you would let me know what specific plans you intend to initiate so as to resolve the matter and I would be happy to meet you to assist in any way I can. As you know I have always been conscious of your family's best interests since my first involvement with you and this has not changed. You must however appreciate that my own family interests are also important to me and I have an obligation to them.

Your response would be appreciated.

Please give my regards to Roman and Ludmilla when you speak to them.

Your sincerely

(signature)

NORMAN."

The 29 July 1996 telephone conversation

58 On 29 July 1996, Mr Morton telephoned Mr Marcus Elgin. Mr Marcus Elgin returned his call and indicated to Mr Morton that Mr Roman Elgin would be sending him more money. He told Mr Morton that Mr Roman Elgin would be back in Australia in November.

59 Mr Marcus Elgin recalled the telephone conversation, but not its details. His evidence was that he would be surprised if he had promised Mr Morton money. I accept Mr Morton's account of the conversation.

The 30 January 1997 letter

60 Mr Morton contacted Mr Marcus Elgin once again, by a letter dated 30 January 1997. The letter was in the following terms:

"Dear Marcus,

We last spoke in July last year when you indicated that Roman would be visiting in November and that you intended coming to see me during his visit.

You also indicated that it was your joint intention to repay me as soon as possible. As I haven't heard from you, I prompt you to get in touch to let me know what your current plans are.

You both know me well and I am sure you would rather come to an accommodation rather than face this ongoing indignity of having me bringing the matter to your attention from time to time. This was never a commercial transaction, but assistance given to friends who asked for help that they needed desperately. I didn't let you down. Now I am being ignored.

Problems like this just don't go away and the sooner something is initiated, the sooner the problem will start to be resolved.

Sincerely,

Norman (handwritten.)"

61 Mr Marcus Elgin did not reply to either of Mr Morton's letters. He did not seek copies of the agreement or further information. He did not dispute the assertion that a part payment of $10,000 had been received by Mr Morton from Mr Roman Elgin in April 1995. He did not raise with Mr Morton the subject of any additional payment of $10,000 having been made by his mother in 1993.

The 28 July 1997 letter

62 Mr Morton subsequently wrote to Mr Roman Elgin on 28 July 1997:

"Dear Roman,

First of all my regards to you and Ludmilla and I send my best wishes for your health and contentment in Saudi Arabia.

I must however raise the subject of the joint indebtedness to me by yourself and Marcus. I thought I would have heard something from you or Marcus about further repayments. As a matter of fact I sent a further reminder to Marcus in January of this year and he did not respond. He had indicated to me in July last year that you were returning for a visit in November 1996 and that it was the intention to both visit me whilst you were here, to discuss the situation overall and that a further payment would then be made. November came and went.

When called upon as a friend in 1990, I responded to your financial needs and advanced you $40,000. This was a very considerable event for me and represented a major portion of my liquid assets. With tears in your eyes, you told me how you appreciated the gesture and that you would never let me down. I know that you were sincere at the time and subsequently on 26 April 1995 when you repaid me an instalment of $10,000.

In spite of the instalment received, the loan debt is now around $100,000. This is ridiculous. Although the loan was never intended to be just a financial transaction, interest accumulates and the longer a debt remains unsettled, the greater the debt becomes. I am not a money lender, I need the money. What more can I say.

If at least you and Marcus could communicate with me and let me know your firm intentions, we may come to some reasonable accommodation.

The financial interests of myself and family are as important to me as yours are to you. What would you do in my place if you had lent a friend money and he did not repay it?

Roman, please do not disappoint me and lose my respect. Please respond.

Yours sincerely,

(Signature)

NORMAN."

63 The letter was addressed to Mr Roman Elgin in Saudi Arabia. However, Mr Elgin denied that he received it. Whilst I am satisfied that Mr Morton wrote and sent the letter, I am not satisfied that Mr Roman Elgin received it.

64 There has been no further payment by Mr Roman Elgin or Mr Marcus Elgin under the terms of the Loan Agreement, nor any payment of interest.

Legal Submissions and Conclusions

65 The High Court in Equuscorp v Glengallan Investments Pty Ltd & Ors[3] held that the parties who have signed a written agreement, unless induced to do so by fraud, mistake or misrepresentation, will be bound by its terms[4]. The defence of non est factum is available if the document they believed they have signed is radically different from that signed[5] and, in appropriate circumstances, they are entitled to the equitable remedy of rectification[6].

66 I am not persuaded that either of the defendants was induced to sign the Loan Agreement by any mistake as to its contents, induced by any representation, or otherwise, by Mr Morton. There is no allegation of fraud on the part of Mr Morton. I am satisfied that the defendants each read the Loan Agreement before signing it in the presence of Mr Grant. I am satisfied that each knew that he was a party to the agreement with Mr Morton and that Mr Morton had made the loans totalling $40,000 to the defendants, as individuals. I am satisfied that each of the defendants was aware of and agreed to the terms of the Loan Agreement. The defendants are bound by the written terms of the Loan Agreement. As they did not sign a document which was radically different from that which they believed they signed, they are not entitled to the benefit either of the defence of non est factum or of the equitable remedy of rectification.

Is Mr Morton's claim statute barred?

67 The defendants contend, in the alternative, that Mr Morton's claim is statute barred under s 5(1)(a) of the Limitation of Actions Act 1958, because the loans were repayable on demand under the terms of the Loan Agreement, properly construed or, alternatively, because the letters to the defendants were demands triggering liability to repay.

Was the loan repayable on demand under the Loan Agreement terms?

68 The defendants rely upon the statement of the applicable principle by Fullagar, J in Ogilvie v Adams[7] :

"There is a long-settled rule of construction that, where there is a present debt between the parties to a contract to repay money, and the only terms as to repayment of the debt are to be spelled out of a promise to repay in demand, or out of a statement that the money is to be repaid or repayable on demand (or on request), an instantaneous cause of action, upon the very creation of the contract, arises in the lender. Whether one calls it a rule of law or not does not seem to me to matter. The only reason why I have chosen the expression 'rule of construction' is because other words or terms may appear in the contract which may be in the circumstances sufficient to show an intention that the cause of action is not to arise until some actual demand or some form of demand is made or until some period after demand has elapsed ... ."

69 The Court should interpret the expression "on demand" as "immediately due", in the absence of proof of a contrary intention by express words or necessary implication[8]. I am not persuaded that the Loan Agreement should be construed as the defendants contend. By its terms, they are not obliged to repay the loan before the expiration of the period of seven days after they are given notice of the requirement to pay.

70 Mr Morton's claim under the Loan Agreement is not statute barred because the loan was not one continuously recoverable at all times.

Were Mr Morton's letters demands under the Loan Agreement?

71 The defendants argue that, even if they were otherwise bound by the terms of the Loan Agreement, Mr Morton's letters to them, dated 31 January 1996, 30 January 1997 and 28 July 1997, respectively, were demands which triggered their liability under its terms. As a result, they contend, his claims against them are statute barred.

72 I am not persuaded by this argument. In my view, the letters are rather reminders to the defendants of their obligations under the Loan Agreement. They do not either require payment or give the requisite seven days notice of such a requirement.

Was the Loan Agreement supported by consideration?

73 The defendants argue, in the further alternative, that, even if the Court were to be satisfied that they did sign the Loan Agreement, did not do so on the basis of any fraud, misrepresentation or mistake and were bound by its terms, there was no consideration flowing from Mr Morton to support the agreement.

74 They contend that, on 6 April 1990, on a proper construction of their obligations under the existing oral agreements, under the principle enunciated by the High Court in Bunbury Foods Pty Ltd v National Bank of Australasia Ltd[9] they would have been allowed seven days, as a reasonable time for compliance with any demand. Mr Morton's assumption of the obligation to give seven days notice of the requirement to repay, therefore, did not constitute sufficient consideration for their promises.

75 The relevant principle as to the time to be allowed for payment, before a debtor is in breach of an obligation to pay "on demand", is set out in the joint judgment in Bunbury Foods as follows:

"... it is now a well established principle of law that a debtor required to pay a debt payable on demand must be allowed a reasonable time to meet the demand. Even in a case where a deed provided that the debt was payable "immediately upon demand thereof in writing" it was held that the provision must be given a reasonable construction so that the debtor had a reasonable time to get the money from some convenient place (Toms v. Wilson ((1862) [1863] EngR 991; 4 B.& S. 442 at pp. 435-455; ...). This does not mean that the notice calling up the debt is invalid unless it requires payment "within a reasonable time". It means no more than that the debtor must be allowed a reasonable opportunity to pay before it can be said that he has failed to comply with the demand. A notice requiring payment forthwith will be regarded as allowing the debtor a reasonable time within which to comply. Until a reasonable time in the sense discussed has elapsed the creditor cannot enforce his security. As Pigott B. stated in Massey v. Sladen ((1868)L.R. 4 Ex. At p. 19_)_ :

'It is not necessary to define what time ought to elapse between the notice and the seizure. It must be a question of the circumstances and relations of the parties, and it would be difficult, perhaps impossible, to lay down any rule of law on the subject, except that the interval must be a reasonable one. But it is quite clear that the plaintiff did not intend to stipulate for a merely illusory notice, but for some notice on which he might reasonably expect to be able to act.'

... Upon the making of a demand the debtor has a reasonable time to obtain the money."[10]

76 In Bunbury Foods the High Court refused to construe the subject contract as containing an implied term that reasonable notice was required of the creditor's intention to call up a loan, so as to allow the debtor time to rearrange its finances. It held that such an implied term would be inconsistent with an express provision that money was repayable on demand[11].

77 The defendants contend that, as matters stood on 6 April 1990, a reasonable time for compliance with any demand for repayment under the oral agreements would have been a period of at least seven days. They refer to REA's financial difficulties, Mr Morton's knowledge of them, his subsequent decision not to make a demand before 1994 or 1995, his expectation that the monies lent would be returned in the short space of a few months and the parties' shared expectation that the monies would be paid after a successful outcome to the arbitration.

78 They refer to cases in the individual circumstances of which differing periods have been held to be reasonable by the courts: three days, by the High Court in Bunbury Foods, five months, by the Supreme Court of Tasmania in Baron v Upton (No 2)[12] and five days (for the mechanics of payment of a multi million dollar debt), by the New South Wales Court of Appeal in Bond v Hongkong Bank of Australia[13]. They also refer to Excelsior Run Pty Ltd v Nelius Pty Ltd[14], an interlocutory decision of the Court, in which Warren, J held that it was arguable that the period of less than 24 hours was not a reasonable time[15].

79 The circumstances of each case will determine what is a reasonable time to be allowed for a demand to be met. Where funds are not available, it may take little time for that position to be ascertained[16]. I am not persuaded by the evidence that, as at 6 April 1990, a reasonable period for compliance with a demand for repayment of the advances made in January 1990 would have been at least seven days. There is no evidence which satisfies me that seven days, as opposed to any other period, would have been a reasonable time to allow for the necessary money to be obtained from a convenient place[17]. Indeed, it would appear from the evidence that money was not available to the defendants from any source other than Mr Morton at that time.

80 Further, under the express terms of the Loan Agreement, Mr Morton undertook the obligation to give seven days notice of the requirement to repay. He was no longer entitled to the benefit of the defendants' obligation to repay upon demand, subject only to them having a reasonable time to meet that demand, the length of which was to be determined in the context of the circumstances prevailing when it was made.

81 In my view, Mr Morton's undertaking of the obligation to give seven days' notice of the requirement to repay the existing debts did provide sufficient consideration to support the defendants' promises under the Loan Agreement.

82 I note that I am not persuaded by Mr Morton's argument that his acceptance of the obligation to give seven days notice of the requirement to repay also constituted a forbearance to sue, amounting to valuable consideration for the defendants' promises under the Loan Agreement. I agree with the defendants' submissions that mere fact of forbearance to sue is not of itself sufficient consideration, in the absence of a request for forbearance or an agreement to forbear[18]. I am not satisfied that there was either an express or an implied request for forbearance by the defendants or an agreement to forbear by Mr Morton.

Interest

83 The defendants argue that the term of the Loan Agreement relating to the payment of "accrued interest for the period of the loan, at the rate of interest charged by the Commonwealth Bank of Australia for overdrafts in excess of One Hundred Thousand Dollars ($100,000.00)" is void for uncertainty and severable. They contend that the evidence from the Commonwealth Bank establishes that there was and is no single rate applicable to all borrowers.

84 The defendants submit that this evidence distinguishes the facts from those in Tonelli v Komirra Pty Ltd[19], in which a term in a sale note referring to "the current bank overdraft rate" was held not to be void for uncertainty, notwithstanding evidence establishing that each bank which might have been approached for such a loan would have negotiated the applicable rate of interest. In Tonelli v Komirra Pty Ltd, Smith, J concluded that the term should be construed as a reference to the uniform maximum overdraft interest rate prescribed by the Reserve Bank.

85 A court will give effect to the apparent intention of the parties as it is expressed in the terms of their written agreement. If terms are inadequately or imprecisely stated, a court will nevertheless try to give effect to them[20]. Extrinsic evidence is admissible to assist in the interpretation of words used by the parties[21]. In searching for the parties' intention a court should not adopt a narrow or pedantic approach[22].

86 I am satisfied that, between 27 October 1989 and 1 June 1992, the Commonwealth Bank charged a readily ascertainable standard rate of interest in relation to overdrafts in excess of $100,000. The rate altered from time to time and local managers retained a discretion to reduce it. After 1 June 1992, the bank charged a readily ascertainable "Overdraft Index Rate" (which changed from time to time) plus a standard margin of 1.75% which a local manager could vary, by reducing it by 0.25% or increasing it to 4%. Any proposed reduction was referred to a Regional Credit Committee. Only in rare cases, such as those involving very good customers or in competition for business, would the margin might be reduced below the standard or average 1.75%. In the majority of cases, any variation in the margin rate would be upwards. The bank monitored the performance of its customers and the interest rate might be varied, as a result. The interest was calculated on the balance on a daily basis and added to the account at the end of each quarter on a compounding basis.

87 In my view, the Loan Agreement should be construed as referring to the standard rate set by the Commonwealth Bank for overdrafts in excess of $100,000, from time to time, between 9 January 1990 and 1 June 1992. Thereafter, the applicable interest rate should be the standard overdraft index rate plus the standard margin of 1.75%.

88 The evidence establishes that the applicable rates are as set out in the schedule to these reasons.

Compound interest

89 There is no express provision requiring the defendants to pay interest calculated on a compounding basis in the Loan Agreement. However, the plaintiff maintains that such an obligation is to be implied, as an incident of normal banking practice and under the interest term in the Loan Agreement, properly construed.

90 The Loan Agreement was made between the individuals, in circumstances where monies were not available from the defendants' bankers because of REA's financial difficulties. Mr Morton himself, in his letter dated 30 January 1997 to Mr Marcus Elgin, characterised the transaction as one between friends, rather than a commercial one. I see no warrant for the implication of the suggested term in accordance with recognised principles[23]. I note that I have not overlooked the evidence from Mr Morton to the effect that it was his view that the Loan Agreement did provide for the payment of compound interest. I agree with the submission of counsel for the defendants that the Court must construe the agreement itself, rather than give effect to a construction of its terms by one of the parties.

91 Counsel for the plaintiff relied upon authorities recognising the bankers' practice of charging compound interest[24]. However, I am not persuaded by the argument that the interest rate provision in the Loan Agreement should be construed to mean that the defendants undertook to pay interest "calculated on the basis of then current banking practices", as in Saunders v Nash[25]. The Loan Agreement term sets the rate of interest with reference to that charged by the Commonwealth Bank, but does not, in my opinion, require its calculation in accordance with banking practice.

92 In my view, Mr Morton is only entitled to interest calculated as simple interest under the Loan Agreement.

93 The plaintiff should succeed in his claim and the defences and counterclaims should be dismissed. I will hear the parties as to the form of orders and in relation to costs.

[1] At T 701 lines 1-2.

[2] At T 633 line 16.

[3] [2004] HCA 55; (2004) 218 CLR 471.

[4] [2004] HCA 55; (2004) 218 CLR 471 at 483 per Gleeson, CJ, McHugh, Kirby, Hayne and Callinan, JJ.

[5] Petelin v Cullen [1975] HCA 24; (1975) 132 CLR 355 at 360 per Barwick CJ, McTiernan, Gibbs, Stephen and Mason JJ.

[6] Equuscorp v Glengallan Investments Pty Ltd & Ors [2004] HCA 55; (2004) 218 CLR 471 at 483 per Gleeson, CJ, McHugh, Kirby, Hayne and Callinan, JJ.

[7] [1981] VicRp 92; [1981] VR 1041 at 1049.

[8] VL Finance Pty Ltd v Legudi [2003] VSC 57 at [46] per Nettle, J.

[9] [1984] HCA 10; (1983-4) 153 CLR 491 at 502-3 per Mason, Murphy, Wilson, Brennan and Dawson, JJ.

[10] [1984] HCA 10; (1983-4) 153 CLR 491 at 502-3 per Mason, Murphy, Wilson, Brennan and Dawson, JJ.

[11] [1984] HCA 10; (1983-4) 153 CLR 491 at 495; see: Bond v Hongkong Bank of Australia (1991) 25 NSWLR 286 at 295 per Gleeson, CJ and 318 per Kirby, P.

[12] [2000] TASSC 73.

[13] (1991) 25 NSWLR 286.

[14] [2001] VSC 161.

[15] [2001] VSC 161 at [16].

[16] As was held in Bunbury Foods to be the case, once the debtor had been notified of the precise amount demanded; see: [1984] HCA 10; (1984-5) 153 CLR 491 at 504.

[17] See: Bunbury Foods Pty Ltd v National Bank of Australasia Ltd [1984] HCA 10; (1983-4) 153 CLR 491 at 503.

[18] McKay v National Australia Bank [1997] 1 VR 173 at 177-8 per Winneke, P; Edlin & Anor v Williams & Anor (Unreported, Supreme Court of Queensland Court of Appeal, 22 December 1998 [41]-[44] per McMurdo, P and Thomas, JA).

[19] [1972] VicRp 87; [1972] VR 737.

[20] Ipex Software Services Pty Ltd & Ors v Mark Hosking [2000] VSCA 239 at [56] per Eames, JA and the authorities referred to therein; see also : Vroon BV v Foster's Brewing Co Ltd [1994] VicRp 53; [1994] 2 VR 32 at 67-68 per Ormiston J.

[21] Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60 at 76-7 per Isaacs J.

[22] Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1967-8) 118 CLR 431 at 437 per Barwick, CJ.

[23] See: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1981-2) 149 CLR 337 at 347 per Mason, J.

[24] National Bank of Greece SA v Pinios Shipping Co No 1 [1990] 1 AC 637; Bank of NSW v Brown [1983] HCA 1; (1983) 151 CLR 514.

[25] [1991] VicRp 47; [1991] 2 VR 63 at 66 per Vincent, J.