Smith v Young

Court of Appeal (NSW)|2016-10-13|Before: Ward JA, Leeming JA

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Primary judgment

It is clear from the ex tempore reasons delivered by the primary judge on 3 June 2016 that her Honour considered the applicant's case to be untenable based on an application of the reasoning of Keane JA, as his Honour then was, in Haller v Ayre [2005] 2 Qd R 410; [2005] QCA 224. Keane JA there followed the reasoning of Isaacs J in Executor, Trustee & Agency Co of South Australia Ltd v Thompson (1919) 27 CLR 162; [1919] HCA 51 to the effect that a mere acknowledgment of an old debt is insufficient to revive a (statute-barred) claim, on the basis that the law would not readily accept that a party would bargain away a good defence. In the present case, the primary judge noted the distinction between a variation to a loan agreement that effectively makes it a new agreement and a mere revival of an existing debt that does not alter it in substance or anything else, citing Keane JA in Haller (at [50]; [53]): … it is not enough that an oral statement by a debtor simply recognises a continuing obligation to pay a debt; that would not even be a sufficient acknowledgment of the existing debt, much less the foundation of a new agreement. Further, it is also clear that a promise to pay on the part of the debtor will not be sufficient if it is qualified, for example, by words which show an intention to pay only that which is "truly owing" or legally recoverable under the previous arrangement. … … the fundamental problem for the appellant is that the promise on the part of the respondents which the appellant sets up is not one which "supersedes the old debt entirely". Rather, it operates as a promise to pay what is owing under the original loan, a promise which can operate only by reference to the debt owing in respect of the loan. And that debt is payable on demand.
The primary judge addressed, and rejected, a submission put for Ms Smith to the effect that the alleged agreements to extend time for repayment of the advances (to December 2007 and 2010 respectively) created a new limitation period; Ms Smith there relying on Ryan Wealth Holdings Pty Ltd v L & V Tomkins Pty Ltd [2016] NSWSC 136. The primary judge considered that the decision in Ryan Wealth could properly be distinguished because the later agreement in that case was in writing and was expressed to supersede the prior agreement. Her Honour noted that in Thompson the nomination of a later date for repayment was within the limitation period.
Her Honour inferred, from the amendment of Ms Smith's statement of claim promptly after the filing of a defence which raised the limitation period, and from the particulars contained in the amended statement of claim, that it was intended to address the Limitation Act defence; and further inferred that Ms Smith was well aware that the limitation period was a very important matter that was being pleaded against her. In those circumstances, her Honour inferred that Ms Smith would have put in the amended statement of claim any and all of the terms of any variation which would have assisted her in defeating the limitation defence. Her Honour considered that it could be expected that Ms Smith would have set out in her amended statement of claim "any and all of varied terms of the loan agreement to address the limitation period defence" and noted that all that was pleaded was that the time for payment would be extended. Her Honour concluded that the pleading was not of a "new agreement" and said there was nothing to suggest that there had been a new or different bargain or anything other than simply an extension of time for repayment of the moneys.

Grounds of appeal

In summary, the complaint made by Ms Smith is that the distinction drawn by her Honour (between a new agreement and the mere revival of an existing debt) did not take into account the full range of possibilities to which the pleading gave rise, including the possibility that the contract may have been varied without a new contract coming into existence.
Ms Smith notes that, in Haller, Keane JA accepted that it was possible for an oral agreement for value or consideration to revive a debt the recovery of which would otherwise be barred by a statute ([47]). She submits that what Keane JA there determined was that all the parties were doing was agreeing to pay a debt which remained payable on demand and that the parties could not be taken to have contracted on a new footing because the creditor had not specified the period of forbearance ([51]-[52]); the fundamental problem for the creditor in that case being that the promise relied upon operated only by reference to the debt which was payable on demand [53].
Ms Smith distinguishes Haller on the basis that in her case it is not alleged that the debt was payable on demand; rather, it is alleged that there was a fixed time for payment (pleaded at [1] of the amended statement of claim as the second anniversary of each advance or drawdown) and, as varied (see [3] and [3A] of the amended statement of claim), on particular dates. She maintains that the time for repayment was altered in an identifiable manner and notes that forbearance to sue is capable of constituting sufficient consideration for a variation to a contract.
Ms Smith argues that, as pleaded, the lender at the borrower's request agreed to vary the time for repayment and this was enough to found a triable issue, such that the primary judge erred in holding that the claim was obviously untenable.
The relevant paragraphs in which the later agreements are pleaded are as follows: 3. In or around Christmas 2005 at the request of the Defendant, the Plaintiff and Defendant agreed to vary the terms of the loan agreement such that the time for repayment by the Defendant of all advances made under the loan agreement were extended (sic) to December 2007 PARTICULARS The variation was agreed by the Plaintiff and Defendant orally. 3A In or around December 2008, at the request of the Defendant, the Plaintiff and Defendant agreed to vary the terms of the loan agreement such that at the time for repayment by the defendant of all advances made under the loan agreement was extended to December 2010. PARTICULARS The variation was agreed by the Plaintiff and Defendant orally.
Ms Smith accepts that the amended statement of claim does not expressly plead that there was a forbearance to sue but submits that it does not need to do so and that in any event such a forbearance can be implied (referring to Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 79 ALJR 825; [2005] HCA 13 at [64]). She notes that in Butler v Fairclough (1917) 23 CLR 78; [1917] HCA 9 at 96, Isaacs J accepted that a promise not to sue for a limited period, definite or indefinite, is a valuable consideration where the substantive claim is one for which the other party is liable.
Ms Young does not dispute that, for the purposes of determining the application, Ms Smith's case is to be taken at its highest, but she argues that, even at its highest, the oral agreement in which additional time was allowed for the repayment of the advances does not have the effect of restarting the limitation period given the decision in Thompson. She argues that here what is pleaded is an oral arrangement said to have created a binding agreement to give additional time to pay and that on the authority of Thompson this is insufficient. She also maintains that the bankruptcy proceedings have no relevance to the application for leave to appeal, noting that the bankruptcy notice related to costs orders unpaid in relation to other proceedings.

Determination

Thompson was a case in which the appellant company was sued as executor of a deceased estate: first, for a debt on a balance of money due for goods sold and delivered by the respondent to the deceased and, second, for money found to be due upon a balance of account and upon an account stated. A limitations defence was run. Isaacs J (at 168) said that the question turned first on whether there was evidence that the parties had come to an agreement for valuable consideration in respect of the goods delivered and interest and, second, on whether that agreement superseded their previously existing obligations in relation to those matters.
Isaacs J accepted that the mere fact that there was a new contract for valuable consideration whereby the respondent bound himself not to sue until a later date would not entitle him to succeed. The claim for goods sold and delivered failed by reason of the fact that reliance was being placed on an oral agreement (which could not take the case out of the operation of the relevant statute).
The claim on an account stated was, however, in a different position. His Honour there distinguished between a mere admission of a debt (a mere promise to pay the old debt at a future time) and a new obligation, supported by new valuable consideration, entirely superseding the old. On the evidence before the Court his Honour said it was not legally impossible to find either of those alternatives and hence the nonsuit was wrong.
Rich J (at 171), concurring (as did the other members of the High Court), expressed the conclusion that it was competent for the Local Court to hold that by a new agreement for valuable consideration a new obligation was substituted for the old debt.
Isaacs J said at 170-171: …it has to be seen whether the [relevant conversation] was merely - even though for valuable consideration - an arrangement to admit an existing debt, coupled with a binding agreement to give time to pay it until January 1913, or was a bargain for valuable consideration to place everything on a new footing, to supersede the old debt entirely and to create a new obligation, namely, to pay the price of goods already delivered taken as at the entered amounts, and interest as claimed, the period of payment of this new debt being fixed at January 2013. … In the first alternative, the plaintiff fails because the evidence is inadmissible or insufficient in law; in the second the plaintiff succeeds, so far as the Statute is concerned, because the bargain, though oral, is not offered as evidence of the original cause of action to which alone the Statute applied, but to a cause of action not only new but entirely independent, the former one having ceased to exist.
In submissions in reply, Ms Smith says that, to the extent relevant, it would be alleged that she secured a practical benefit from the amended arrangement in that Ms Young promised her in 2008 that she (Ms Smith) would be the first person to be repaid out of the proceeds of Family Court litigation in which Ms Young was then engaged. That promise is not pleaded in the amended statement of claim, nor was there an application where the matter was before the District Court judge for an amendment to the pleading. However, it does illustrate the difficulty of determining, in the absence of the evidence that may be adduced at the hearing of the relevant oral agreement on which Ms Smith relies, that her claim is obviously untenable because of a Limitation Act defence. In that regard, although as noted by the respondent in a quite different context, the caution expressed in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; [1992] HCA 55 at 533 (that, except in the clearest of cases, it is undesirable that limitation questions of the kind there under consideration be decided in proceedings in advance of the hearing of the action - there, interlocutory proceedings) is not inapposite.
The case pleaded in the amended statement of claim, at least arguably, is not governed by Haller. Keane JA in that case held that the parties had merely agreed, after the limitation period had expired, that the debtor would pay what was owing under the original debt, with the debt remaining payable on demand (Haller at [50]). The original loan agreement remained intact (Haller at [52]-[53]). Ms Smith alleges that the original oral agreement, which provided for repayment of the loan within a specific term, was varied twice, each time within the limitation period, to substitute a later date for payment of the loan.
There are difficulties with the form of the pleading. Paragraphs 3 and 3A plead an agreement to vary the original loan agreement, but do not state the material facts necessary to establish that the agreement was effective to vary the original agreement. However, her Honour did not decide the case on the basis of the inadequacy of the pleadings and there is no notice of contention.
Nonetheless, the respondent submitted that the pleading is deficient because it does not specifically allege that the applicant provided consideration for the respondent's promise to pay the amounts due at a date later than that originally stated in the agreement. Quite apart from the respondent's failure to file a notice of contention, in the absence of a strike out motion the pleading should be read as impliedly alleging that the applicant provided consideration by her agreement to forbear from suing. Such consideration is essential to the validity of the variation alleged in the amended pleading.
In my view it cannot be said that the limitation defence was bound to succeed such that the claim by Ms Smith was so obviously untenable as to warrant summary dismissal. Whether Ms Smith can make out the facts necessary to make good her pleaded case is a matter which cannot be determined on this occasion.
I am of the view that the primary judge erred and that it is appropriate to give leave to appeal and allow the appeal. I would make the following orders: 1. Grant leave to appeal. 2. Direct the applicant to file a notice of appeal in the terms of the draft notice dated 15 July 2016 within 48 hours. 3. Set aside the orders of Olsson DCJ made on 3 June 2016 and order instead that the respondent's motion filed on 6 May 2016 be dismissed with costs. 4. Order the respondent to pay the appellant's costs of the appeal. 5. The respondent should have a certificate under the Suitors' Fund Act 1951 (NSW).
LEEMING JA: I agree with Ward JA.
SACKVILLE AJA: I agree with Ward JA's reasons and the orders her Honour proposes.

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Suitors' Fund Act 1951(NSW)

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