Steiner v Strang

THE NATURE OF THE CASE

1. The present proceedings are unusual for several reasons.
2. First, as executors of a deceased estate, in the interests of which they sue, the cross claimants' principal "witness" and the primary source of any instructions bearing upon their claim (the deceased) is, in the nature of things, unavailable to them to verify particulars of the claim they have felt duty bound to pursue, or to refute the cross defendant's evidence against the claim.
3. Secondly, they sue, principally, upon objective facts as to the payment of money to the cross defendant by the deceased, coupled with the formal "acknowledgment" of indebtedness signed by the cross defendant, which characterises the deceased's payments as a loan repayable on her death or demand. The terms of the "acknowledgement" can be found in earlier judgments: [2014] NSWSC 1250 at [16] and [2015] NSWCA 203 at [18].
4. Thirdly, the cross defendant has sworn an affidavit to the effect that the payments made to him by the deceased were a gift, never intended to be a loan, and the "acknowledgment" was no more than a non-binding declaration intended to give him comfort in accepting the deceased's money as a gift.
5. Fourthly, the cross claimants' primary case, shorn of articulation in terms of a cause of action, is that the "acknowledgment" is an admission of indebtedness from which the cross defendant cannot, or should not, be permitted to resile.
6. Fifthly, having sworn an affidavit designed to explain away the "acknowledgment" as an admission, the cross defendant seeks summary disposal of the cross claim: (a) to take advantage of the cross claimants' perceived inability to particularise any cause of action, or pre-existing obligation, underlying the "acknowledgment" on which they sue; and (b) perhaps, to avoid any necessity for him, the cross defendant, to submit to further cross examination on his sworn version of events.
7. The cross defendant does not, in terms, describe the "acknowledgment" as a sham; but attachment of that label to it, on the case for which he contends, is not wholly out of place. Implicit in that case is, at least, a contention that, by their execution of the "acknowledgment", the parties to it did not intend to create legal relations (Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105-106); and a contention that any promise purportedly made by him to repay money paid to him by his mother is unenforceable for a want of consideration, a price paid by the deceased for the cross defendant's promise to repay (Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424 at 456-458). However, more fundamentally, the cross defendant's primary contention is that the "acknowledgment" was never intended by him and his mother to take effect according to its terms. This is the hallmark of a sham transaction: Equuscorp Pty Ltd v HGT Investments Pty Ltd (2005) 218 CLR 472 at 486 [46].
8. In argument on the cross defendant's motion, the parties agreed that: 1. on the re-hearing of the cross claim, neither side of the record is limited by the manner in which the proceedings were initially conducted at first instance or in the Court of Appeal; 2. subject to cross examination, the whole of the evidence upon which the parties propose to rely on a re-hearing has been reduced to writing in the form of affidavits which were before the Court of Appeal and, on the hearing of the motion, before me; and 3. the reasons for judgment published by the Court of Appeal represent a fair, general summary of the available evidence bearing upon the cross claim.

THE STATEMENT OF CROSS CLAIM, AS PLEADED, IS DEFECTIVE

1. The cross defendant's criticism of the form of the statement of cross claim (invoking UCPR rule 14.28) is justified. Notwithstanding that they conceded in the Court of Appeal that they could provide no particularisation of the circumstances in which any obligation pre-existing the "acknowledgment" was created or came into existence ([2015] NSW CA 203 at [48]), the cross claimants purport to plead two separate "contracts", one referable to each payment made by the deceased to the cross defendant, reciting a promise, consideration and ambiguous terms operating as a gloss on the "acknowledgment".
2. In their present form, paragraphs 5 and 6 of the statement of cross claim (key provisions of the pleading) are embarrassing, with the consequence that the whole of the pleading ought to be struck out. Without those paragraphs, the pleading merely recites undisputed facts that stop short of identifying a cause of action: the cross claimants' status as executors of the will of the deceased (paragraph 1); the cross defendant's status as the son, and a beneficiary, of the deceased (paragraph 2); the deceased's payment of $100,000 to the cross defendant on 16 November 2007 (paragraph 3); her payment of $781,000 to him on 7 December 2007 (paragraph 4); the non-repayment of any of that money to the deceased during her lifetime (paragraph 7); the making of a demand by the cross claimants for its repayment (paragraph 8); and the non-repayment of it to the estate of the deceased (paragraph 8).
3. For the present, I leave to one side, as not material to any decision presently required of me, the cross claimants' claim that the debt they allege against the cross defendant can be set off against any entitlement he has under the will of the deceased (paragraph 9), and their claim to pre-judgment interest under CPA section 101 (paragraph 10).

SHOULD THE CROSS CLAIM BE SUMMARILY DISMISSED?

1. The statement of cross claim having been struck out, the cross claimants should be granted leave to re-plead their claim, unless the cross defendant is successful in his invocation of UCPR rule 13.4.
2. However, he cannot succeed on that front unless he can persuade the Court that the cross claimants have no reasonable cause of action (not limited to the claim in contract they have sought, unsuccessfully, to plead) or that continuation of the cross claim would otherwise be frivolous, vexatious or an abuse of the process of the court.
3. In my opinion, at this point, the cross defendant overreaches himself in his claim for summary disposal of the cross claim. First, the case he seeks to make is firmly grounded upon an assumption that, in critical analysis of the cross claimants' case at this stage of the proceedings, he is entitled: (a) to have his sworn evidence taken into account; and (b) to have his evidence accepted without his having been subject to a risk of further cross examination on it. Secondly, his criticism of the case the cross claimants seek to make is grounded upon an assumption that, notwithstanding his execution of the "acknowledgement" document and the unavailability of the deceased to provide instructions responsive to his request for particulars of an "agreement" allegedly underlying the "acknowledgment", he is entitled to full particulars of such an agreement, in default of which the cross claim cannot proceed.
4. True it is, the cross claimants bear the onus of proving that the deceased's advance of money to the cross defendant should be characterised as a loan rather than as a gift: Coshott v Sakic (1998) 44 NSWLR 667 at 671 E, citing Heydon v Perpetual Executors Trustees & Agency Co (WA) Ltd (1930) 45 CLR 111 at 113.
5. That said, the "acknowledgement" document, at a bare minimum, is an admission against interest by the cross defendant that does cast upon him a forensic (as distinct from a legal) onus to explain it away.
6. Upon an assumption that the cross claimants can identify a cause of action upon which to sue the cross defendant, there are three potential impediments of a forensic character standing in the way of the cross defendant's attempts to explain away the "acknowledgement".
7. First, the formalities attending the creation and content of the "acknowledgement" operate against any suggestion that the document was not intended to have legal consequences or to mean what it says. It takes the form of a formal, legal document ostensibly prepared for a bona fide legal purpose, even if falling short (as it does) of characterisation as a deed (Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361 at 366-369). It was prepared by, and executed under the supervision of, solicitors acting on either side of what purports to be a commercial transaction, even if one or the other or both of the solicitors were less than ordinarily vigilant because the transaction was perceived as a family arrangement.
8. Secondly, the deceased incorporated the "acknowledgement" by reference in not one, but several, of the wills she subsequently made ([2015] NSWCA 203 at [32]-[36]), thereby arguably relying upon it as an operative legal document and arguably adopting it as a foundation for management of her estate vis-á-vis her children, only one of whom was the cross defendant. She evidently made provision for the cross defendant, in her last will, upon an assumption (if not a condition) that he accepted that he was indebted to her estate.
9. Thirdly, if the "acknowledgement" was never intended to mean what it says, it could potentially have been used as an instrument of fraud. Execution of commercial documents is not to be explained away as a whim in a society that attributes significance to such documentation: eg., Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 178 [38]-183 [48]. The creation of a formal, commercial document ostensibly evidencing a loan calls for explanation if the transaction evidenced by the document is to be characterised, at the option of the debtor, as a gift. Whether any third-party interests were, or could have been, affected by presentation of the deceased's payments to the cross defendant as a loan is not revealed by the evidence, nor tested in an adversarial setting.
10. It is not my role, or intention, in publishing this judgment to provide advice to the cross claimants as to whether, and how, they should re-plead the statement of cross-claim. I am mindful that they are parties to these proceedings in a representative, rather than a personal, capacity. In their decision-making they have to take into account interests other than their own. The substantive contest in the proceedings may, ultimately, be between the cross defendant and a sister, the other person beneficially interested in the residuary estate of the deceased. Whether the cross claimants have an indemnity for their costs from her, or any other person, is not known. Such considerations may have a bearing upon their ability or preparedness to engage in ongoing litigation. All participants in the proceedings must, also, consult the fact that in the principal proceedings to which the cross claim is ancillary the cross defendant (as a plaintiff) applies for family provision relief under chapter 3 of the Succession Act 2006 NSW, and other proceedings affecting the estate are current.
11. Nevertheless, in the exercise of judgement required of me, I cannot order that the cross claim be summarily dismissed in circumstances in which it seems to me that there are grounds upon which the cross claim might reasonably be maintained.
12. Albeit at an interlocutory level of analysis, the factual matrix of the proceedings appears to me to warrant close examination, in particular, of a cause of action in debt on an account stated (Lewis v Wilson (1997) 42 NSWLR 228, citing especially Commonwealth Dairy Produce Equalization Committee Ltd v McCabe (1938) 38 SR (NSW) 397 at 401; 55 WN (NSW) 144 at 146; Bank of New South Wales v Brown (1983) 151 CLR 514 at 535-537) and estoppel by convention (Young, Croft & Smith, On Equity (Law Book Co, Sydney, 2009), paragraph [12.100]).
13. In New South Wales the classic statement of the nature and scope of a claim in debt on an account stated is that of Jordan CJ in Commonwealth Dairy Produce Equalization Committee Ltd v McCabe at 38 SR (NSW) 401; 55 WN (NSW) 146: "An action for money found to be due on accounts stated may take one of two forms. It is always essential in such an action that there should have been before action brought an admission by the defendant or his agent to the plaintiff or his agent that the sum claimed is due by the defendant to the plaintiff: John Shaw & Son (Salford) Ltd v Shaw [1935] 2 KB 113 at 135. But this admission may be so framed as to be merely an acknowledgement of indebtedness, in which case although it supplies evidence of the debt the evidence may be rebutted by proof that no debt in fact existed. Or it may take the form of an account stated and agreed to between two parties, by which it is in effect agreed that the items on both sides shall be set off and the balance paid. In the latter type of case, the agreement for set-off supplies good consideration for the promise to pay the amount of the balance; and the account stated is itself an agreement for valuable consideration constituting a cause of action, and not merely evidence of liability: Siqueira v Noronha [1934] AC 332 at 337-338; Camillo Tank Steamship Co Ltd v Alexandria Engineering Works 38 TLR 134."
14. The essential idea of estoppel by convention (which, I hold, is, or may be, distinct from estoppel by deed) is that parties who have conducted their relations with each other on an agreed or assumed state of affairs (adopted as the conventional basis of their relationship) will, in proceedings against one another, be estopped from denying that agreed or assumed state of affairs: Labracon Pty Ltd v Cuturich and Anor [2013] NSWSC 97 at [106].
15. The continued availability of the common money count of "account stated" has been the subject of criticism in some quarters (Lewis v Wilson (1997) 42 NSWLR 228 at 233C-D; Katelis v Adalia Pty Ltd [2002] VSC 392 at [39]; Julian Bailey, "Lewis v Wilson: Account stated rears its ugly head" (1997) 12 JCL 160), but its availability has been confirmed at an appellate level (critically in Commonwealth Dairy Produce Equalization Committee Ltd v McCabe) and it remains part of the stock-in-trade of modern litigation (eg., Peter Lawrence Lewis v Russell William Lamb [2011] NSWSC 873 at [17]; Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 at [70]).
16. Arguably, these proceedings demonstrate the continuing utility of the common money count of "account stated" notwithstanding the origins of common money counts in an era dominated by trial by jury and, in more recent times, the practical abolition of civil jury trials. They straddle the boundary between substantive and adjectival law, facilitating (most famously in the case of an action for money had and received) a practical, but principled, application of the law and its ongoing development. In the present case, a claim in debt on an account stated may provide a vehicle through which, in a manner fair to both sides of the record, the claim of the deceased and the defence of the cross defendant can be accommodated.
17. Invocation of a common money count in modern litigation brings to mind the procedural mechanism currently found in UCPR rule 14.12, which provides as follows: "14.12 Pleading of facts in short form in certain money claims (1) Subject to this rule, if the plaintiff claims money payable by the defendant to the plaintiff for any of the following: (a) goods sold and delivered by the plaintiff to the defendant, (b) goods bargained and sold by the plaintiff to the defendant, (c) work done or materials provided by the plaintiff for the defendant at the defendant's request, (d) money lent by the plaintiff to the defendant, (e) money paid by the plaintiff for the defendant at the defendant's request, (f) money had and received by the defendant for the plaintiff's use, (g) interest on money due from the defendant to the plaintiff, and forborne at interest by the plaintiff at the defendant's request, (h) money found to be due from the defendant to the plaintiff on accounts stated between them, it is sufficient to plead the facts concerned in short form (that is, by using the form of words set out in the relevant paragraph above). (2) The defendant may file a notice requiring the plaintiff to plead the facts on which he or she relies in full (that is, in accordance with the provisions of this Part other than this rule). (3) Such a notice must be filed within the time limited for the filing of the defence. (4) If the defendant files a notice under this rule: (a) the plaintiff must, within 28 days after service of the notice: (i) file an amended statement of claim pleading the facts on which he or she relies in full, and (ii) include in the amended statement of claim a note to the effect that the statement has been amended in response to the notice, and (b) if a defence has not been filed, the time limited for the filing of defence is extended until 14 days after service on the defendant of the plaintiff's amended statement of claim."
18. In my assessment, if the cross claimants were to plead the payments made by the deceased to the cross defendant and the execution, and terms, of the "acknowledgment" as an admission of a liability to repay a loan, preliminary to identification of their cause of action as a claim in debt on an account stated, that would be a sufficient pleading of the facts on which they rely to preclude the cross defendant from requiring them, by reference to UCPR rule 14.12, to file a more elaborate factual pleading. This could involve no more than a repetition of paragraphs 1-4 and 7-8 of the statement of cross-claim, together with a replacement of paragraphs 5 and 6 with an explicit pleading of the "acknowledgement" as an admission of indebtedness, capped, after what is presently paragraph 8, with an express claim of $881,000 in debt on an account stated (the "acknowledgement").
19. The "acknowledgment" appears, at a minimum, to bear the character of the first of the two causes of action on an account stated identified by Jordan CJ in Commonwealth Dairy Produce Equalization Committee Ltd v McCabe. It is arguably an admission of indebtedness notwithstanding that repayment of the loan may be read as conditioned on the death of the deceased or a demand: Lewis v Wilson (1997) 42 NSWLR 228 at 232C-233C. Clause 1 of the "acknowledgment" records an admission that the deceased's payments to the cross defendant were a loan. Clause 2.2 records a promise, or at least a statement of intention, to repay the loan to the deceased's estate on her death. Use of the word "loan" generally imports an obligation to repay.
20. If, as may be anticipated, the cross defendant contends that the "acknowledgment" is a sham, estoppel by convention may have work to do. On that front, a major question in dispute may be the element of "detrimental reliance" on the "acknowledgment" which the cross defendant contends, and I accept as a general proposition, is required for the establishment of an estoppel by convention: MK and JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39 at [72]). However, it seems to me reasonably arguable that the deceased acted to her detriment in grounding her testamentary intentions upon an assumption that the "acknowledgment" is an operative legal document.
21. In summary, in my assessment, the following case is reasonably open to be argued by the cross claimants: 1. The "acknowledgment" evidences an unqualified admission of present indebtedness, of a sum certain, payable (if not earlier demanded) on the death of the deceased, an event which was bound to occur, and which occurred before the institution of these proceedings in which the debt has been claimed, in substance, on the "acknowledgment" on a common money count of account stated. That cause of action accrued no later than the death of the deceased. 2. Not inconsistent with the cross claimants' cause of action in debt on an account stated is their present (and foreshadowed) reliance upon an estoppel by convention grounded upon the deliberate adoption by the deceased and the cross defendant of the "acknowledgment" as a foundation for their financial relationship (Labracon Pty Ltd v Cuturich and Anor [2013] NSWSC 97 at [129]-[130], citing Dabbs v Seaman (1925) 36 CLR 538 at 548-550), upon which foundation the deceased relied in her estate planning and in her decision to die without first having personally demanded repayment of the debt freely acknowledged by the cross defendant at substantially the same time as her advance of the acknowledged loan to him (MK and JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39 at [72]).
22. In the fullness of time, on a final hearing, the Court might be satisfied that any cause of action based upon an account stated or a claim of estoppel by convention must fail in light of the cross defendant's evidence taken as a whole, including any cross examination to which it is subject.
23. For the present, it seems to me proceedings on the cross claim are not ripe for summary disposal and, accordingly, the cross defendant's application under UCPR rule 13.4 must be dismissed.

CONCLUSION

1. Accordingly, I make the following orders: 1. ORDER (pursuant to UCPR rule 14.28) that the statement of cross-claim be struck out. 2. ORDER that the cross claimants be granted leave to file an amended cross claim. 3. ORDER that the cross claimants file and serve, no later than 3 February 2016, any amended cross claim they propose to file pursuant to that grant of leave. 4. ORDER that the cross defendant's notice of motion (filed 20 October 2015 and amended on 18 December 2015) otherwise be dismissed.
2. The principal proceedings presently stand listed before me for directions on 4 February 2016, together with related proceedings. I will allow the parties, then, an opportunity to address on the costs of the motion if they have not earlier reached agreement on that score.

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: 01 February 2016