Woodhouse v Woodhouse

HEADNOTE [This headnote is not to be read as part of the judgment] The appellant, Nicola Woodhouse, and her husband Garry conducted farming operations on three properties named Lorraine, Colongolong and Cotterills. In April 2010, as part of succession planning involving Nicola, Garry and their children, Garry transferred Lorraine to their eldest son Philip and Colongolong to their son Andrew's wife Catherine. At the same time, the Colongolong and Cotterills properties were leased to Philip, each for a term of five years at no rent so that he could undertake the family operations on the three properties for that period. The present dispute arose out of the transfer of Lorraine from Garry to Philip, the first respondent in the appeal. Nicola maintained that it was agreed between Garry (who died in 2011) and Philip in 2009 that, as a condition of receiving Lorraine, Philip would "take on" and discharge the $220,000 overdraft liability of the trading trust which had been conducting the farming operations. She further maintained that, pursuant to an oral loan agreement made with her in June 2010, she had advanced $267,237 to Philip to enable him to discharge the overdraft liability and use the balance as working capital in his farming business. She contended the loan was made at an annual interest rate of 8% and repayable after five years. Nicola commenced proceedings in the District Court on 31 August 2018, seeking recovery of the principal and interest on the loan. In support of her claim, she relied on evidence given by Mr Drummond, her and Garry's then accountant, who was present at the meeting in June 2010 in Walwa in northern Victoria at which the alleged loan agreement was made. She also relied on Philip's financial statements and tax returns for the years ended 30 June 2010 to 30 June 2014, which had been prepared by Mr Drummond and recorded as a liability of Philip a loan from Nicola in the amount alleged and payments of interest for various periods calculated at a rate of 8%. Philip denied that there was any loan on the terms pleaded. Alternatively, he contended that Nicola's claim was statute-barred, because if there was a loan it was repayable on demand, so that the limitation period commenced to run on the making of the loan in June 2010. In response, Nicola relied on nine interest payments and repayments of principal made to her between 20 October 2010 and 23 June 2014 as constituting "confirmations" of the debt within the meaning of Limitation Act 1969 (NSW), s 54(2)(a)(ii), thereby postponing the commencement of the limitation period for her claim. All but one of those payments had been made by Nicola, writing cheques on Philip's bank account. By his cross-claim, Philip sought to recover equitable compensation for breaches of fiduciary duty by Nicola in making those unauthorised payments to herself and for her benefit. The primary judge (Ward CJ in Eq) dismissed Nicola's claim, not being persuaded that a loan agreement had been entered into on the terms alleged. Her Honour did not make any findings as to which, if any, of the pleaded terms was established by the evidence. Her Honour further found that, if there was a loan, it was repayable on demand; and that the interest payments did not constitute "confirmations" of Nicola's cause of action under Limitation Act s 54(2)(a)(ii) as they had not been authorised by Philip and thus were not relevantly made by him. The result was that Nicola's claim was (or would have been) statute-barred. The primary judge also upheld Philip's cross-claim against Nicola, entering judgment for $119,737. In Nicola's appeal, the principal issues were: 1. whether there was an enforceable loan agreement between Nicola and Philip on the terms pleaded; 2. whether, if there was a binding agreement for a loan repayable on demand, the interest payments made by Nicola to herself constituted "confirmations" of Nicola's cause of action for recovery of the debt so as to postpone the commencement of the limitation period for that action under Limitation Act, s 54(2)(a)(ii). The Court held (Meagher JA, Bell CJ and Mitchelmore JA agreeing), allowing the appeal: As to issue (i):

1. The evidence of Nicola and Mr Drummond as to what was said in the meeting with Philip at Walwa in June 2010 should have been accepted, and establishes that a loan agreement was made on the terms pleaded by Nicola. Nicola's evidence was corroborated by that of Mr Drummond except with respect to the duration of the loan: at [1] (Bell CJ); [58]-[72], [96]-[98], [103], [106] (Meagher JA); [124] (Mitchelmore JA).
2. Their evidence as to a loan made by Nicola to enable Philip to pay out the trading trust's overdraft was consistent with contemporaneous documents speaking as to the context in which the loan was agreed. In particular, the 9 June 2010 letter from the ANZ Bank offering a loan facility with a limit of $250,000, and with a stated purpose to "Payout Existing Landmark Debt and Provide additional Working Capital", was only sensibly explained as reflecting a step taken to enable Philip to comply with his agreement to discharge the overdraft, an outcome ultimately achieved by the loan agreement: at [1] (Bell CJ); [30]-[34], [42]-[50], [101] (Meagher JA); [124] (Mitchelmore JA).
3. The primary judge's finding that Philip likely did not understand the nature of the loan said to have been made or the documents which supported its existence was not consistent either with the evidence as to his cognitive functioning or his subsequent conduct. The former included that of a practising psychologist called in Philip's case, as well as his own evidence that he had entered into transactions in 2010 involving the financial concepts of "loan" and "overdraft" that he claimed not to understand. His subsequent conduct included the giving of instructions to his solicitors, recorded in a 14 April 2015 letter, that he had taken on the "debt associated with" the trading trust "of some $220,000" when he received Lorraine; and the recording of the loan and interest payments in his annual financial statements and tax returns between 2010 and 2014, of which the evidence indicated he was most likely aware: at [1] (Bell CJ); [35]-[41], [51]-[57], [91]-[94], [100], [102]-[104] (Meagher JA); [124] (Mitchelmore JA).
4. As to the duration of the loan, whilst the only direct evidence was that of Nicola, Mr Drummond's evidence left open the possibility that something was said as to the duration of the loan in the conversation at Walwa. Nicola's evidence as to the duration being five years was to be accepted. The primary judge made no general adverse finding as to Nicola's credibility or reliability. Her evidence as to duration was consistent with the period over which Philip had been given the use of the other two properties, Colongolong and Cotterills, under leases from Catherine and Nicola; with a handwritten unexecuted "Loan Agreement" dated September 2010 in evidence, which provided for repayment after five years; and with Mr Drummond's understanding gained from Nicola before April 2015 as to the duration of the loan being five years: at [1] (Bell CJ); [106]-[114] (Meagher JA); [124] (Mitchelmore JA). As to issue (ii):
5. As the loan was repayable after five years and the claim for recovery was therefore brought within time, it was unnecessary to decide whether Nicola's interest payments constituted "confirmations" of her claim within the meaning of Limitation Act, s 54(2)(a)(ii). However, had there been a loan with no express term as to its duration, it did not follow that the loan was repayable on demand. It was arguable that a term would be implied in that scenario, as necessary for business efficacy, that the loan was not repayable without notice: at [1] (Bell CJ); [116]-[117] (Meagher JA); [124] (Mitchelmore JA). VL Finance Pty Ltd v Legudi [2003] VSC 57, Re Brookers (Aust) Ltd (in liq); Brooker v Pridham (1986) 41 SASR 380; Haller v Ayre [2005] 2 Qd R 410; [2005] QCA 224, referred to.

Judgment

1. BELL CJ: I agree with the closely reasoned analysis of Meagher JA and with the orders his Honour proposes.
2. MEAGHER JA: The first respondent (Philip Woodhouse) is an adult son of the appellant, Nicola Woodhouse. For convenience, these reasons refer to those parties and other members of their families by their first names. Nicola and her husband Garry (who died in early 2011) conducted farming operations, principally breeding cattle and sheep for sale, on three properties in the Wagga Wagga district of New South Wales. (There was a fourth property, Gregadoo, which was used in those farming operations, but which is not presently relevant.) Those properties were Lorraine (which included the family homestead), Colongolong and Cotterills. In April 2010, following succession planning discussions commencing in early 2009 and involving Garry, Philip, Nicola and the other children, Garry transferred Lorraine to Philip and Colongolong to Catherine, the wife of Philip's younger brother, Andrew. Nicola retained ownership of Cotterills. At the same time, the Colongolong and Cotterills properties were leased to Philip, each for a term of five years at no rent. In addition, the livestock, plant, machinery and equipment used in the parents' farming operations conducted on the properties were transferred to Philip.
3. The dispute the subject of this litigation arose in connection with the transfer of Lorraine to Philip. Nicola maintains that at the outset it was agreed between Garry and Philip that, in addition to receiving the transfer of Lorraine and five-year leases of the other two properties, Philip would "take on" the overdraft liability of the trading trust which had been conducting the farming operations. In the underlying proceedings she alleged that she had agreed in June 2010 to advance a sum of $267,237 (omitting cents) to Philip at an annual interest rate of 8% to enable him to discharge the overdraft liability, leaving the balance to be used as working capital. That sum was to be repaid after five years.
4. The underlying proceedings were commenced in the District Court on 31 August 2018, and subsequently transferred to the Supreme Court. As such, they were started more than six years after the alleged loan was made on 29 June 2010 by the transfer of $267,237 from Nicola's maturing term deposit with Elders Rural Bank to the trading trust's overdraft account with Landmark Financial Services (the Landmark S1 account). That account was conducted by Lorraine Pastoral Co Pty Ltd (Lorraine Pastoral), the corporate trustee of that trust until some time in 2001, when it was replaced by Garry and Nicola. Notwithstanding the company's removal as trustee, the business continued to operate the Landmark S1 account of which the company remained the bank's customer.
5. In addition to Nicola, Mr Hayden Drummond, an accountant of the firm ASB & Associates, gave evidence as to the conversations relied on in support of the alleged oral loan agreement. Mr Drummond also prepared Nicola and Philip's separate financial statements and tax returns for the years ended 30 June 2010 to 30 June 2014. His financial statements recorded as a liability of Philip a loan from Nicola in the amount alleged, as well as payments of interest for various periods in fact, calculated at a rate of 8%. Those interest payments were also claimed as deductible expenses in Philip's tax returns for the same periods.
6. In his affidavit evidence, Philip denied that any of the relevant conversations had occurred, and that he had made any agreement for loan with his mother. To the extent that his financial statements and tax returns recorded otherwise and that he had signed them, Philip said that he did not read or understand those documents. That response was plausible (but contested) in circumstances where it was not controversial that Philip had experienced learning difficulties from an early age and that, as an adult, he continued to have difficulty in reading and comprehending documents. One consequence was, according to Philip's evidence, that he was never shown documents. Another was that when he took over Lorraine and the farming operations, Nicola in particular continued to provide substantial assistance in relation to his banking, legal and taxation affairs until at least late 2012, when Philip's second wife Jane became involved. Philip did, however, have a separate bookkeeper who with the assistance of Nicola undertook the collation and recording of income and expense information using an accounting software program. The information in that form was then provided to Mr Drummond to enable Business Activity Statements (BAS) to be lodged and annual financial statements and tax returns to be prepared.
7. In addition to denying the fact of any loan agreement on the terms pleaded, Philip contended that Nicola's claim was statute-barred. If there was a loan, it was alleged to have been repayable on demand, so that any limitation period commenced to run on the making of the loan (Ogilvie v Adams [1981] VR 1041 at 1043). In response, Nicola relied on nine interest payments and one repayment of principal made to her between 20 October 2010 and 23 June 2014 as constituting "confirmations" of the debt within the meaning of Limitation Act 1969 (NSW), s 54(2)(a)(ii). With the exception of the last in time of these payments, each was made by Nicola, as an authorised signatory, writing cheques on Philip's bank account in favour of herself. That account was initially with Landmark Financial Services and referred to as the Landmark S2 account, and subsequently with the ANZ Bank and known as the ANZ "Business Classic" account. As to her authority to do so, Philip's evidence was that he trusted his mother to pay expenses which he had incurred.
8. The primary judge dismissed Nicola's claim (Woodhouse v Woodhouse [2022] NSWSC 204). First, her Honour was not persuaded on the balance of probabilities that a loan agreement had been entered into on the particular terms alleged (J[165]). No finding was made as to which, if any, of those terms was made out by the evidence. Secondly and specifically, her Honour was not persuaded that any loan was repayable on a fixed date (being five years from the making of the loan) (J[166]). In the face of that conclusion, the primary judge considered that the loan (if otherwise made) was to be treated as "repayable on demand", with the consequence that the limitation period for an action for recovery commenced to run on 29 June 2010 when the loan was made. (There was at this point no consideration of whether a term should be implied as necessary for business efficacy that the loan not be repayable without notice: cf VL Finance Pty Ltd v Legudi [2003] VSC 57 at [53] (Nettle J) and Re Brookers (Aust) Ltd (in liq); Brooker v Pridham (1986) 41 SASR 380 at 383-4 (King CJ), 391 (Olsson J). See also Haller v Ayre [2005] 2 Qd R 410; [2005] QCA 224 at [31] per Keane JA, adopting Nettle J's analysis.) It followed on her Honour's analysis that the claim was (or would in any event have been) statute-barred unless the cause of action had been confirmed, as Nicola contended. The primary judge rejected that contention on the basis that the payments were not "authorised" and accordingly had not relevantly been "made" by Philip, there being no evidence that he understood that they were being made and for what purpose (J[174]).
9. There was also a cross-claim by Philip, against Nicola and separately against Catherine's estate. Only the former remains relevant in the appeal. By his cross-claim against Nicola, Philip sought to recover "about 60 payments" (J[177]) made by her between 22 January 2010 and 16 April 2014 by cheques drawn on Philip's bank accounts payable to herself or for her benefit. It was alleged that all of these payments were made by Nicola in breach of fiduciary duty. In addition, Philip claimed damages from Nicola with respect to a payment of $15,000 made by Jane on 23 June 2014 on account of interest. That payment was said to have been made in consequence of a fraudulent misrepresentation by Nicola that Philip owed her $15,000 in interest. Philip otherwise accepted that Jane had his authority to receive notice of his debts and to effect payments by cheque on his behalf. (In fact, Jane's evidence was that she was not a signatory to the relevant cheque account from which this payment was made.)
10. The primary judge did not deal with this last claim in entering judgment for Philip on his cross-claim against Nicola for $119,737.13.
11. The 60 particularised payments which are the subject of Philip's cross-claim total $147,482.97 and include the eight payments of interest made by cheques signed by Nicola totalling $71,400. They also include a repayment of principal of $17,000 reducing the alleged debt to $250,000. They do not include the interest payment by Jane of $15,000.
12. At J[176]-[182] the primary judge summarises the submissions of Philip and Nicola in relation to the "breach of fiduciary duty/fraud claim" which in its terms describes both of the claims referred to above. Her Honour's reasons follow under the heading "Determination". Those reasons only address the breach of fiduciary duty claim, concluding that the evidence did not establish on the balance of probabilities that Philip authorised Nicola to draw funds from his account "in payment of her own expenses or for her own benefit" (J[188]). The payments of interest fell into the latter category. It followed that Nicola's drawing of cheques for those purposes was a breach of fiduciary duty.
13. In calculating the amount to be awarded as equitable compensation, the primary judge proceeded as explained in J[189]: I consider that the most appropriate course in the present case is to order Nicola to repay the amounts withdrawn by her from Philip's account (with the exception of those amounts that I am satisfied, on the evidence, are most likely to have been for the benefit of Philip). I have calculated that those amounts total ($119,737.13) being all the amounts other than those disclosed as having been drawn for reimbursement of Philip's credit card or the like.
14. There are two grounds of appeal. The first challenges her Honour's failure to find there was an enforceable loan agreement on the terms pleaded. The second by grounds 2(a) and (b) challenges her Honour's conclusion that the claim was barred by the Limitation Act; and by ground 2(c) the finding on the cross-claim that Nicola was not authorised to draw funds from Philip's account to pay interest. In addition, ground 2(d) challenges the separate finding that Philip was not capable of and did not understand that the payments being made pursuant to that authority included interest payments in respect of the loan.
15. It is convenient to deal with these grounds in the order in which they arise, and in doing so, first to consider the evidence and then to dispose of the arguments made in relation to ground 1.
16. For the reasons which follow, I consider that ground 1 is made out, with the result that the limitation issues raised by ground 2 do not arise. It follows that the appeal should be allowed and the orders formulated at [123] below made. Those orders, as these reasons later explain, propose a judgment in favour of Nicola for the principal amount remaining due ($250,000) and outstanding interest, the latter calculated on the basis that the judgment on Philip's cross-claim is adjusted to exclude the interest payments made by Nicola and the repayment of principal of $17,000, but not the $15,000 interest payment made by Jane.

Ground 1 (failure to find there was an enforceable loan agreement)

A question of principle?

1. Three witnesses gave evidence as to the existence or otherwise of the alleged loan agreement. They were Nicola, Mr Drummond and Philip. In addition there were several contemporaneous documents relevant to the existence or likelihood of such an agreement having been proposed and made. Those documents included but were not limited to Philip's financial statements and tax returns for the periods ended 30 June 2010 to 30 June 2014. The balance sheets for each of those years recorded as a current liability a loan to "Nicky Woodhouse" of $267,237, reduced to $250,000. The tax returns for the same years claimed interest expenses as deductible business expenses. Each of those returns contained a declaration by Mr Drummond that it was prepared in accordance with information supplied by the taxpayer Philip, who had signed a declaration stating that the information provided to Mr Drummond was true and correct.
2. In the primary judge's reasons for not being "persuaded on the balance of probabilities that a loan agreement was entered into on the particular terms alleged" (J[165]), her Honour commenced with the following observation: [158] Ordinarily, I place greater weight on contemporaneous documents than witnesses' accounts of oral conversations (particularly when those conversations were many years ago) … Here, however, the written documents that most clearly support the existence of a loan agreement (the income tax returns and financial statements) are not documents that I can be confident that Philip understood (albeit that he signed the documents and his taxation position is thus consistent with there being a loan liability).
3. Her Honour then observed, in relation to Nicola's evidence that at some stage in 2009 during a discussion between Garry and Philip about the transfer of Lorraine to Philip at which she was present, Garry had said "if you take on Lorraine and the trading trust you have to take on the liabilities including the overdraft": [160] There may well have been a discussion back at the time that Philip took over the conduct of the farming business on Lorraine as to him taking on liability for the (or an) overdraft, although without explanation to Philip of what an overdraft was or how it operated (of which there is no evidence) it is unlikely in my opinion that he would have understood it.
4. The appellant submits that this last observation could not be directly relevant to whether the parties had a "common intention" with respect to the alleged contractual terms, which was to be determined objectively in circumstances where there was no pleading of unconscionability or non est factum, citing Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [39]-[40]. Accordingly, what matters is "what each party by words and conduct would have led a reasonable person in the position of the other party to believe", that inquiry normally requiring "consideration not only of [what was said], but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction" (Toll at [40]).
5. As Heydon and Crennan JJ later noted in Byrnes v Kendle (2011) 243 CLR 353; [2011] HCA 26 at [101], the actual state of mind of either party to the negotiations resulting in a contract is only relevant: … in limited circumstances, for example, where one party relies on the common law defences of non est factum or duress; where misrepresentation is alleged; where one party is under a mistake and the other knows it; where the contract is liable to be set aside by reason of equitable doctrines of undue influence, unconscionable dealing or other fraud in equity; where the equitable remedy of rectification is available; where a question of estoppel arises; or where there is a question whether the "contract" is a sham.
6. The appellant makes three submissions about the application of these principles in the present case. First, it is submitted that the primary judge impermissibly had regard to whether Philip was or was not likely to have understood what was said in one or more of the conversations relied on as giving rise to the oral agreement. To have done so would, it is contended, have involved a departure from the principles described above. This submission is made acknowledging that, with respect to the relevant conversations, the primary judge's reasons do not include "explicit findings" in relation to the alleged terms of the loan, or in relation to the critical conversation in June 2010 in Mr Drummond's office in Walwa, a town about 150km south-southeast of Wagga Wagga and over the Victorian border.
7. Secondly, it is said that the primary judge gave little or insufficient weight to contemporaneous documents on the basis that they were not likely to have been understood by Philip at the time they were received, created or acted on. The documents relied on came into existence before and after the alleged agreement was made, the former constituting the context in which the relevant conversations occurred, and the latter involving subsequent conduct consistent or inconsistent with the existence of such an agreement. This submission is made in circumstances where the reasons do not make specific findings concerning all of the documents relied on in the appellant Nicola's case.
8. Thirdly, it is said that the primary judge's observations as to what it was likely Philip would or would not have understood were factually unsound.
9. It is convenient to deal with each of these submissions in the analysis of the evidence which follows. At this point three additional observations should be made.
10. The first is made in relation to Philip's financial statements and income tax returns. The evidence of Nicola and Philip was that Philip and his bookkeeper, Ms Judith Neil, attended Nicola's home at least every three months for purposes which included the preparation of quarterly BAS. Nicola's evidence was that some of the interest cheques were written on those occasions and that more generally, the cheque butts and bank statements for the relevant period were made available to the bookkeeper to enable her to input them into accounting software. In the light of this evidence, the question whether Philip was aware that the interest payments were being made and dealt with in the financial statements and tax returns was not to be answered solely by reference to whether he was likely to have been able to understand those documents when finally generated.
11. The second observation also relates to the financial statements and tax returns, but from the perspective of Nicola's case. It was Philip's case that the conversations which occurred in 2009 and 2010 were fabricated by Nicola in circumstances where Philip did not have any idea that the loan was to be made and that interest payments were likely to be paid to Nicola by cheques drawn on his ANZ Business Classic account. In that context it is relevant to consider whether Nicola took any steps to prevent the fact of those payments from coming to Philip's attention, so as to ensure that source of revenue continued to be available to her in circumstances where she had paid away $267,000. Thus the accounting records, as well as the financial statements and tax returns, remained relevant, irrespective of whether Philip was capable of comprehending them. They were relied on as corroborating Nicola's case.
12. The final observation is that in addition to the tax returns and financial statements, there are other documents said to support the existence of the agreement. They include an ANZ Bank letter of offer and a letter from Philip's then recently retained solicitors JDC Lawyers dated 14 April 2015. Those documents fall to be considered in this Court's task of weighing the conflicting evidence and drawing its own inferences and conclusions, whilst at the same time bearing in mind the advantages that the primary judge had in seeing and hearing the three principal witnesses (Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [24]-[25]).

Analysis of the evidence as to the alleged loan

1. Nicola gave evidence of three particular conversations. The first took place in 2009 between Garry and Philip at her home on an occasion when she was present. The second occurred in May 2010 when she and Philip went to the ANZ Bank to discuss a loan facility. The third and critical conversation occurred at the meeting in June 2010 at which Garry, Nicola and Philip were present with Mr Drummond at his office in Walwa.

The "taking on" the overdraft conversation in 2009

1. The first conversation followed discussions with Commins Hendriks, Garry and Nicola's lawyers, about succession. It involved an exchange to the following effect between Garry and Philip in Nicola's presence: Garry: If you take on Lorraine and the trading trust you have to take on the liabilities including the overdraft. Philip: What about Andrew? Garry: You are getting five years worth of the lease. you would have the use of the whole three farms because you have taken on the overdraft and any other liabilities of the trading trust. Philip: The overdraft is so large because of Jenny and Simon haven't been managing the place properly. Garry: Stop going on about it, look here, we are giving you the run of the place for five years you can do what you want with it and you are getting a bloody good deal, and you can take it or leave it. Andrew would be very pleased to get what you are getting. Andrew and Cate will be taking possession of their property. Philip: Ok.
2. The reference to Jennifer and Simon is to Philip's sister Jennifer and her husband, who had been managing Lorraine for a period before 2009. Philip's evidence was that he started working full-time on Lorraine from about September 2009. It was not controversial that the subject of succession planning was being discussed. An ASB & Associates tax invoice of 3 June 2010 refers to a meeting on 30 July 2009 "to discuss succession issues, super etc".
3. Philip's evidence was that in about August 2009 he had a discussion with his father about setting up a bank account for him to run the farm business, and that they visited Landmark Financial Services to arrange for that to occur. In mid-August 2009 Garry paid $10,000 from the Landmark S1 account to Philip, it would appear for the purpose of his opening the Landmark S2 account. The first cheque drawn on the Landmark S2 account was in October 2009 in favour of Telstra.
4. In his affidavit, Philip denied understanding at this time what an overdraft was. (The evidence as to his capacity to do so is addressed below at [51]-[54].) He also denied any conversation with his father in the terms suggested by Nicola. He maintained that if his father had spoken to him in that way he "would have packed up and left and gone back to Tumut". In cross-examination he accepted that there may have been a conversation with his parents at their home in September 2009 "about [him] taking over Lorraine". He said "I believe it probably happened, yes".
5. By early December 2009 the succession planning had proceeded to the point where it was agreed that Lorraine should be transferred to Philip and Colongolong to Andrew or Catherine. To enable that to occur, Commins Hendriks were to have those properties valued. In their letter to Nicola and Garry on 9 December 2009, the firm raised as matters to be attended to: … 4. We note that we are awaiting confirmation from Phillip as to who the property is to be transferred to and who is acting on his behalf. 5. We note that you are making arrangements to meet with Hayden Drummond to discuss the trading entity in which Phillip is to trade. 6. We are also awaiting instructions from Phillip as to whether he wishes for any formal arrangements to be put in place in relation to his continued occupation of "Colongolong" for the following five years.

Philip's admission by his lawyers' 14 April 2015 letter

1. At this point, it is relevant to consider the JDC Lawyers letter dated 14 April 2015. At the time this letter was written by Mr Castrission, there was a dispute between Philip and Andrew/Catherine as to the transfer of 215 acres of land, part of Colongolong, to Lorraine by way of a boundary adjustment. By late March 2015 Philip had apparently lodged caveats over the Colongolong and Cotterills properties. With respect to that subject he instructed JDC Lawyers, who do not appear to have previously acted for him, to act on his behalf. Their letter to Walsh & Blair, the solicitors acting for Nicola, sought to recite part of the background to that dispute: We understand that Colongolong was transferred to Catherine … from our client's father, Garry Woodhouse, in or about 2010, prior to his passing in 2012. At that time (2010) our client received (from his father) the property known as "Lorraine", which also included the debt associated with the Lorraine Pastoral Company Trading Trust of some $220,000.00.
2. Turning first to the events which that statement addresses, the transfer of Lorraine to Philip was registered on 1 April 2010 and effected in completion of a contract for sale of the same date for a purchase price of $2,650,000 the payment of which was forgiven on settlement, the transfer of the land thereby constituting a gift from Garry in that amount. At that time (the end of May 2010) the debit balance of the Landmark S1 account was $224,151.10. In each of these respects the statement extracted above is correct. (On 1 June 2010 Philip also entered into five-year rent free leases over Colongolong and Cotterills with Catherine and Nicola, respectively.)
3. The balance of the statement is wholly inconsistent with Philip's evidence as to there not having been at some point a discussion with his parents or at least his father to the effect that in agreeing to take a transfer of Lorraine he was also agreeing to take on the liabilities of the trading trust including its overdraft. The imposition of such a condition could only have been proposed by Garry and agreed to by Philip.
4. In cross-examination about this letter (which Philip anticipated before the subject was squarely introduced by adding but not responsively to an earlier question that "I didn't instruct that letter to go out"), he agreed that he had told his lawyers what was written in the passage extracted above. Thereafter the cross-examiner's attempts to explore with Philip exactly what he said to the lawyers were objected to as directed to a privileged communication, and ultimately rejected on that basis. Accordingly, Philip's evidence is that he told his lawyers in early 2015 that he had accepted the transfer of Lorraine with an associated debt of some $220,000, which could only be the debit balance of the overdraft account as at April or May 2010. There was no evidence to suggest that this condition was subsequently waived or forgiven. Rather, the position was that the relevant liability was discharged by Nicola's deposit into the Landmark S1 account in late June 2010, with the credit balance of that account then being paid to Philip after the account was closed.
5. The primary judge addressed Nicola's reliance on the admission made in this letter at J[61]-[64], noting: [62] … Thus, it is contended that Philip must have had some communication with his solicitor about a very specific figure (and involving the concept of debt and financing of the property). As to the concept of "the debt associated with" the Trading Trust, it is not clear to me that this would necessarily have been Philip's understanding of financing concepts - it could equally be his lawyers' characterization of the arrangements. However, I accept that the $220,000 figure is reasonably specific. (The figure of $220,000 is presumably the term deposit moneys less the amount of around $40,000 that was paid to Philip's own account.)
6. There is no further consideration in the reasons as to whether the stated basis on which the transfer of Lorraine occurred significantly corroborated Nicola's evidence as to there having been an exchange between Garry and Philip concerning that same subject in 2009. Nor, looking beyond 2009, is there any consideration of the significance of the ANZ Bank letter of offer (addressed below at [42]-[50]) in the light of Philip's acceptance of an obligation to discharge the trading trust's overdraft liability.
7. It is suggested in J[62] that in describing Philip as having agreed to undertake the "debt associated with" the trading trust, the solicitors may have mischaracterised the arrangements which were in fact discussed and agreed between Philip and his father or parents. That was a most unlikely scenario, and in any event was irrelevant in the absence of any evidence from the lawyers or Philip that what he had sought to convey was something quite different from the notion that he had agreed to undertake (and discharge) the overdraft liability. The description in the letter was wholly consistent with what Garry was insisting on in his conversation with Philip, given in evidence by Nicola. There was no other different scenario suggested as having been communicated by Philip, and misunderstood by the lawyers. In the absence of evidence to that effect, in my view the letter was to be understood as recording accurately the agreed condition on which Lorraine was transferred to Philip, namely that he was responsible for discharging the overdraft liability.

The 9 June 2010 ANZ Bank letter of offer

1. The second conversation which Nicola recalled was at a meeting in late May or early June 2010 with the ANZ Bank in relation to a loan facility. There followed a letter from the ANZ Bank addressed to Philip and dated 9 June 2010. That letter proposed to Philip as "client" a loan facility with a limit of $250,000, describing its purpose as being "Payout Existing Landmark Debt and Provide additional Working capital". The security for the facility was to include a guarantee and indemnity from Nicola supported by a registered first mortgage over Cotterills. The letter was signed by "Andrew Toole, Agribusiness Manager". The copy of the letter in evidence has the words "Nicki's Copy" at the top of its first page.
2. In his affidavit, whilst accepting that he went to the ANZ Bank and did speak with the bank officer Andrew Toole, Philip deposed that there was no conversation about a loan facility to be used to enable him to pay out the overdraft.
3. In cross-examination Philip recalled going to the ANZ Bank with his mother in 2010 and speaking to a Mr Toole. He could not recall "what we were there to discuss", and whilst conceding that it was "possible" that he had a conversation about a loan, he could not recall anything about that conversation.
4. The authenticity of the ANZ Bank letter was not disputed. Accordingly, it must have been preceded by some communication between the bank and Philip or someone acting or purporting to act on behalf of Philip. Nicola and Philip's evidence establishes that the communication was between Mr Toole, Nicola and Philip, with Nicola doing most of the talking for Philip. Nicola's evidence raised an issue as to whether Garry was also present. Philip's evidence does not suggest that Garry was there.
5. Philip's case was that at this meeting only he and Nicola were present with Mr Toole, and that Nicola did all the talking and must have requested the loan, but did so without his understanding or appreciating what was going on. Nicola's evidence was that the loan proposal was in response to an application, the purpose of which included paying out the overdraft liability which he had agreed to undertake, and that Philip was present and understood that such a request was being made on his behalf.
6. Nicola's version of events was consistent with there having been an earlier conversation between Garry and Philip in which Philip agreed to take on the overdraft liability. In cross-examination it was suggested that neither Nicola nor the "bank officer" sought to give any explanation to Philip about the reason for the visit or what was being discussed, and that there was no way that her son would have been able to understand or comprehend the letter of offer when received. Nicola denied each of those propositions, saying that the bank's proposal was explained to Philip and asserting that he "understood it".
7. In the cross-examination of Nicola, it was put that Garry was not present at the meeting and did not know about the ANZ Bank offer because "this was a step you took by yourself" and "behind Garry's back" to "ensure that arrangements were made for the payment out of the overdraft". Nicola's doing so was described as going "behind Garry's back" because, it was said, Nicola knew "that Garry did not have a requirement that the loan be paid out".
8. If Philip had agreed with Garry to take the transfer of Lorraine on the basis that Philip pay out the overdraft, the factual foundation for what was put to Nicola was not made out. In addition, Garry's subsequent agreement in the arrangements which on Nicola's case (and according to her and Mr Drummond's evidence) were finalised at the meeting in Walwa is consistent with his requiring that the loan be paid out, and with his being aware of the ANZ Bank offer discussed at that meeting.
9. Whether Philip had some understanding of the loan that was sought and the reason for it must also take account of Mr Drummond's affidavit evidence that shortly after 9 June 2010 Philip showed him a copy of the ANZ Bank letter. Mr Drummond does not say what was discussed. However, his firm recollection was that the meeting which subsequently occurred at Walwa some time after 9 June 2010 was "to exactly talk about that document". That being the position is not consistent with a scenario in which Philip did not understand what was happening and Nicola was "going behind Garry's back" in seeking to have Philip pay out the overdraft.

Philip's cognitive functioning

1. Before addressing what happened at the Walwa meeting, it is useful at this point to refer to the evidence as to Philip's likely level of understanding in 2010 of a loan transaction undertaken for the purpose of paying out a liability, including a bank overdraft liability.
2. At J[160] the primary judge says that although there may have been a discussion at the time Philip took over the conduct of the farming business as to him taking on liability for the overdraft, "it is unlikely… that he would have understood" what that involved without an explanation "of what an overdraft was or how it operated".
3. Although there was no evidence of the substance of any explanation given to Philip as to what an overdraft was and how it operated, Nicola gave evidence that there was an explanation given as to what was being discussed at the meeting with Mr Toole concerning the proposed borrowing from the ANZ Bank. More generally, there was evidence called in Philip's case from a practising psychologist, Mr Martin Finnegan, who assessed Philip's cognitive functioning, concluding that it was "somewhere between the low - low average and average range. That's - approximately 68% of people are in that range". His evidence was that people with average cognitive functioning are able to understand financial concepts, the difference between income and expenses, and the difference between an asset and liability.
4. That assessment accorded with Philip's evidence concerning transactions he entered into in 2010. Philip maintained in cross-examination that he did not know what an "overdraft" was until he got one "in about 2014, 15". In fact, his first overdraft was arranged in August 2010. Philip accepted that at this time he understood what a "mortgage" and "stock mortgage" were, having signed a stock mortgage in favour of the ANZ Bank as security for an amount of $50,000 on 18 August 2010. That mortgage secured the "Business Overdraft Facility" associated with his ANZ Business Classic account, which had an "Overdraft Limit" of $50,000, and replaced his Landmark S2 account. The first deposit into that account of $10,000 was made on 6 August 2010, being the proceeds of a cheque drawn by Garry in favour of Philip. In cross-examination, when shown the mortgage documents Philip accepted that the stock mortgage related to the overdraft and, when questioned about the latter, perceptively confessed to having no idea what the difference was between a "loan and an overdraft".
5. This evidence is consistent with Philip being capable as at August 2010 of understanding the financial concepts of loan, liability and overdraft sufficiently to have comprehended the amount of the loan sought from the ANZ Bank, its purpose, and some of the terms on which it had been offered. The evidence of Nicola and Mr Drummond as to what was said in the Walwa meeting included comments by Philip to the effect that it was easier or cheaper to borrow from his mother rather than the bank. There is nothing in the evidence which suggests that he did not have that cognitive capacity earlier and in 2009, and the description he gave his solicitors as to the basis on which he had agreed to take on the Lorraine property indicates that he had that capacity at that earlier time. No attempt was made to lead evidence to the effect that Philip's instructions given in early 2015 described an understanding gained only recently of what he was to be taken to have agreed to in 2009.
6. For these reasons, in my view the evidence supports a different finding to that made by the primary judge at J[160] in relation to Philip's general understanding of what was happening in 2009 and 2010. Whilst he may have had, as the primary judge observed at J[16], "difficulty in reading and comprehension of documents" which was apparent in part from the way in which he gave his evidence, that evidence included that he was capable of having, and had, the understandings referred to above.
7. The particular inferences which in my view are supported by this evidence and should have been drawn are as follows. First, at the relevant times in 2010 Philip understood the purpose of the meeting with the ANZ Bank was to apply for a loan in his name to enable him to pay out the trading trust's overdraft and be left with some working capital. Secondly, following discussions with Nicola and Mr Drummond, Philip understood the letter from the ANZ Bank to offer a loan of $250,000 which could be used for that purpose. Thirdly, from a discussion with Mr Drummond, Philip understood that the ANZ Bank loan offer and the need for him to borrow money were to be discussed with Mr Drummond and his parents at Mr Drummond's office in Walwa.

The mid-June 2010 meeting with Mr Drummond at Walwa

1. The conversations at the meeting in Walwa concerning a loan were the subject of evidence by Mr Drummond and Nicola. Mr Drummond recalled a conversation to the following effect: Nicola: I have funds in the Rural Bank. I am prepared to lend the money to you [Philip] for the rate of 8% fixed. I would not require any security. That is cheaper money than that being offered by the ANZ Bank and it will help me, as I will get more interest than I am currently getting on my investment. I don't want to mortgage my farm to the ANZ Bank. Drummond: Well we need to get the overdraft paid out prior to 30 June so that we can transfer all the assets over to Philip so that he can operate on his own and effectively wind up the trading trust. Philip: I am happy with that agreement. It is easier for me to borrow money from you rather than the bank. Garry: Philip will take over all the livestock and the plant and equipment. Can all of this be organised by the end of the financial year so that Philip can take over on 1 July? Drummond: Yes, I'll attend to that. After I've transferred the assets of Lorraine Trading Trust I will wind it up.
2. Mr Drummond's reference to the need to get the overdraft paid out prior to 30 June is most likely explained by the fact that the Landmark S1 account overdraft was secured by a stock mortgage over the livestock to be transferred to Philip, as well as a mortgage over Cotterills.
3. Nicola's affidavit described a conversation in the following terms: Nicola: I'll agree to lend you the money that I have in a term deposit, which is about to mature. This would be of benefit to both of us, as I will charge you more interest than I am currently receiving and you will be able to borrow money for less than you will pay to the bank. I suggest that the interest be at 8% and that you borrow the money for five years. If you can pay it back before then, then that would be well and good. Philip: I agree with that. That is much better interest than being charged by the ANZ Bank. Garry: And this will mean that we don't have to worry about there being bank guarantees and security.
4. In cross-examination it was put to Nicola that this evidence was concocted and part of her "attempt to treat the sum of $267,000 as a debt from Philip". In other words, it was being suggested that the Walwa meeting had nothing to do with a loan agreement, and that subsequently Nicola decided without Philip's agreement or approval (and presumably behind Garry's back) to discharge the overdraft and then treat that payment into the Landmark S1 account as moneys advanced by her to Philip.
5. Focussing first on the absence of any reference to the duration of the loan in Mr Drummond's evidence, it was not suggested to Nicola in cross-examination that there was nothing said during the meeting as to the duration of the loan. Perhaps understandably, in his cross-examination Mr Drummond was not asked non-leading questions as to whether anything was said about the duration of the loan. Nor was he asked to confirm that he had set out in his evidence everything that was relevantly said about the terms of the loan. If his evidence is read as doing so, it suggests that nothing may have been said by Nicola at this meeting as to the duration of the loan. That is not consistent with Nicola's recollection as given in evidence.
6. The only evidence Mr Drummond gave as to the duration of the loan was his evidence that in his letter to Philip of 29 April 2015 (see [78] below), the reference to his "understanding" that the loan was due to expire on 29 June 2015 (which was five years after the overdraft was discharged) "came from Nicola". When he first came to have that understanding was not explored.
7. The other evidence which directly addresses the duration of the loan was a handwritten "Loan Agreement", which Nicola recalled was prepared by one of the accountants in the ASB & Associates Wagga Wagga office "some weeks" after the June 2010 meeting in Walwa. In circumstances where the advance had been made following the Walwa discussion, Nicola said she was concerned to "formalise" the loan agreement.
8. This document is a draft and includes corrections and crossing out, presumably by the original author, as well as writing in Nicola's hand and her signature. It refers to a "loan of $267,237.02 at 8%" and includes that "the principal is repayable by 1 July 2015 or earlier upon 6 months notice" and that interest is payable "quarterly in arrears". Nicola's signature appears under her handwritten name. Her evidence was that she was "going to get Philip to sign it, but I never ever got round to it". According to Philip's wife, Jane, the document was given to her by Nicola some time in 2014. It is not referred to in the primary judge's reasons.
9. Turning to Philip's evidence as to the Walwa meeting, in his affidavit he denied there was a conversation to the effect recalled by Mr Drummond. He also denied that he had a conversation in the terms suggested by Nicola. Indeed, in his affidavit he said he had no recollection of attending a meeting in Walwa with his parents and Mr Drummond in June 2010. In cross-examination Philip recalled travelling in a car with his parents to "Walla Walla" (a different town in southern New South Wales, which is to be taken as a reference to Walwa) to meet Mr Drummond in June 2010. He did not recall any of the conversations during that meeting. The only meeting which Philip recalled having had with Mr Drummond was in Wagga Wagga concerning the structure of his proposed farming activities. That meeting was likely to have occurred earlier and in December 2009, as suggested by an ASB & Associates tax invoice.
10. Mr Drummond was cross-examined at some length, and initially it was not put to him, as it had been to Nicola, that his evidence about this meeting was concocted. In response to questioning concerning the ANZ Bank letter, Mr Drummond said he had seen the letter before, and that the purpose of the Walwa meeting was to discuss that loan proposal. It was suggested that he did not in fact ever see that letter in 2010. Mr Drummond disagreed "completely", and also said that it was not possible that Nicola had talked about it at a later date and that he had "in some sense reconstructed a memory of it". The cross-examiner then put a series of questions to Mr Drummond, seeking his agreement to his having been told by Nicola after June 2010 of a loan of $267,000 which had already been made to Philip. Those questions inquired whether Nicola had told him certain things "after 1 July 2010" or "in the second half of 2010"; but without including in the question whether that was the first time that he had heard about the matter, or whether he already had knowledge of it by July 2010. Mr Drummond agreed that Nicola had told him some such matters in the second half of 2010.
11. Mr Drummond was then questioned about the applicable interest rate, and made clear that "I was aware of the interest rate right from the start", and before July 2010. He also said that any conversation as to whether Nicola was willing to pay out the overdraft and lend the money to Philip "only took place in June 2010" at Walwa and was not discussed thereafter. When further pressed as to conversations about an interest rate of 8%, Mr Drummond remained firm that it "was said in the June 2010 [meeting] but I don't believe it would have been said afterwards". He then answered "incorrect" to the proposition that he did not have a "genuine recollection of being party to a conversation in which Nicola agreed to lend Philip $267,000 and Philip agreed to borrow that sum".
12. The primary judge made the following observations concerning Mr Drummond's evidence (J[136]): While Mr Drummond also struck me as a witness genuinely trying to give his recollection of events, it is clear that his recollection was limited and that Nicola had consistently pressed Mr Drummond in relation to the alleged loan which I consider is likely to have had an effect on his memory.
13. Her Honour's observation as to his recollection being "limited" is not based on his demeanour, but on the terms in which he gave his evidence. It is my view that Mr Drummond's recollection as to what was said during the Walwa meeting by Nicola about the terms of the proposed loan was not relevantly limited and was an independent recollection firmly held. To the extent that some aspects of his recollection may have been "limited", they were not in respect of the terms of the agreement or the fact that Nicola proposed to pay out the overdraft and lend the money to Philip before 30 June 2010.
14. A further series of propositions was put to Mr Drummond. They were to the following effect: that he did not have a genuine recollection of being party to the conversation at Walwa of which he gave evidence, to which Mr Drummond responded "incorrect"; that he was asserting a genuine recollection because he would otherwise have been embarrassed, he having recorded certain payments as interest payments in Philip's tax returns in circumstances where he did not have sufficient instructions from Philip so as to be breaching a duty to protect his client, to which Mr Drummond responded "again, incorrect"; and that he was concerned in preparing the affidavit that if he did not assert a recollection it might leave him open to an allegation that he had been negligent, to which he also responded "incorrect".
15. The cross-examiner then pointed out to Mr Drummond that there was no ASB & Associates invoice in evidence which referred to any meeting in his Walwa office in June 2010. Mr Drummond did not agree that the most likely explanation for that being the case was that the meeting did not occur. He maintained that there was "a reason why I remember that meeting more than others". In re-examination he gave that reason. In June 2010 he was working five days a fortnight, two days a week in the Walwa office and one day a fortnight in the Wagga Wagga office. The few Wagga Wagga-based clients that he still had were normally seen in Wagga Wagga. This meeting occurred in Walwa, a 150km trip into Victoria, and Mr Drummond remembered Nicola "phoning up to make the appointment, and because it was close to the end of the financial year, and I said, 'Nicky I'm not going to be back in Wagga, you're going to have to come to [Walwa] if you really want to have this appointment', and they did". Mr Drummond's evidence in this respect was to be accepted, especially in circumstances where Philip himself recalled attending the meeting.

The making of the loan

1. On 28 June 2010, the term deposit balance of $267,237.02 held in Nicola's Elders Rural Bank account was transferred to the Landmark S1 account, resulting in a credit balance in that account at the commencement of business on 29 June 2010 of $43,085.92. On 14 July 2010, $40,855.32 was transferred from that account to Philip's Landmark S2 account. From 14 August 2010 that account became the ANZ Business Classic account (the ANZ Bank having earlier acquired Landmark).
2. As has been noted, it was proposed that the plant and equipment and livestock assets of the trading trust's business be transferred to Philip by 30 June 2010. According to Philip's financial statements and the equivalent financial statements of the trading trust, with effect from 1 July 2010 his farming assets included property, plant and equipment valued at $122,968.71, and cattle, sheep and horses valued at $40,432.60.
3. As well as explaining how the trading trust's and Philip's taxation returns and financial statements were prepared, Mr Drummond also gave evidence concerning two communications he had with Philip after June 2010.

Mr Drummond's evidence of subsequent communications with Philip about loan

1. In his first affidavit, Mr Drummond referred to a meeting with Philip in his Wagga Wagga office in 2014, where they had an exchange to the following effect: Philip: I have been thinking about the loan from mum. I think I might be able to borrow the money at a lesser rate than that which I am paying mum and then I would pay her out. Mr Drummond: Yes, that's a good idea.
2. In his responding affidavit Philip maintained that this conversation never occurred, although agreeing that he and his wife did have a meeting with Mr Drummond in his Wagga Wagga office at some stage in 2014.
3. After he swore his first affidavit, Mr Drummond was provided with a copy of a letter dated 29 April 2015 that he had written to Philip concerning the "Nicki Woodhouse Loan". That letter stated in its first paragraph: I understand that the loan from your mother is due to expire on 29th June this year. I am also aware that you have mentioned in the past that you would like to get this re-financed as soon as you can as the current borrowing rate is probably cheaper. Your mother has recently been to see me regarding her tax and financial affairs and to assist with her planning, I was wondering if you were able to advise when you expect to pay any outstanding interest and payout the loan. Further, could you please confirm that the amount owing at 29th June would be $265,000 comprising $15,000 interest and $250,000 principal. It should be noted that to obtain your tax deduction this year for the $15,000 interest it must be paid before 30/6/15 as it cannot be accrued.
4. Philip's wife Jane's evidence was that she received and opened this letter and did not show it to Philip until some time in June 2015 because she thought "he would be angry at the suggestion that he had a debt to his mother". The first time that she recalled Philip mentioning the existence (or non-existence) of a loan between his mother and him was on 23 June 2014 when, according to Jane, Nicola came to the Lorraine property and demanded that she pay an amount of $15,000 owed to Nicola as interest on a loan. Jane said that although she had not heard of any loan from Nicola to Philip, she signed, completed and dated a cheque for that amount and handed it to Nicola (without first having spoken to Philip to confirm that there was such a loan).
5. In cross-examination Jane's evidence was that she did not sign the cheque, but that Philip would sign cheques in blank, which she would later complete as occurred on this occasion. In her affidavit Jane said that when Philip returned and she advised him of what she had done, he replied "I don't have a loan, I haven't borrowed money off her". Jane adhered to that evidence in cross-examination. The discussion between her and Philip was not a heated discussion. She explained that after she had written out the cheque "he got cranky at me because he said there was no loan". He then made the statement set out above. According to Jane's evidence that was the first and last time in 2014 that there was any discussion between them about the loan.
6. In considering the terms of Mr Drummond's letter of 29 April 2015 and how the statements and behaviour attributed to Philip in the letter were to be understood (and particularly as to whether they were to be treated as admissions that he knew there was a loan agreement with his mother), the primary judge made the following observation at J[161]: … Moreover, references to Philip having previously expressed an understanding as to a loan and a wish to refinance (vague in content as they are) may well also be likely to have been the product of things said to Philip by Nicola rather than as to his actual understanding that he was a party to a loan agreement.
7. Her Honour regarded the most significant evidence on the question whether Philip understood that he was a party to a loan agreement to be his response to Jane's advice when told about the cheque for $15,000 written in favour of Nicola (J[162]): The most telling evidence in this regard seems to me to be the reaction by Philip in 2014, when Nicola demanded that Jane pay interest on the alleged loan; he was adamant that there was no loan.
8. In his affidavit evidence Philip maintained that he discovered for the first time in 2014 that his mother had been making payments to herself for so-called "interest" due on a loan to him. He could not recall exactly how he found that out, but maintained those payments were not made with his consent. The circumstance of Jane writing a $15,000 cheque for interest and their later discussion would have put Philip on notice that there was an alleged loan.
9. If Philip truly believed for the first time in mid-2014 that his mother was asserting the existence of a loan and entitlements to interest, that was not thereafter apparent in his conduct or instructions to the solicitors acting for him with respect to the boundary adjustment dispute with Catherine and Andrew. By that time the fact of that loan, that the capital amount had been reduced and that interest was being paid to Nicola had been apparent from Philip's financial statements and taxation returns for each of the years ending 30 June 2010 to 30 June 2014. It had also been apparent on examination of the cheque butts processed by his bookkeeper.
10. No demand or request for repayment of any interest payment was made in 2014 or 2015. Nor was any response denying the existence of the loan and any obligation to repay it or interest on it made to Mr Drummond's letter of 29 April 2015. Rather, less than two weeks earlier Philip's solicitors had written their letter of 14 April 2015 to Nicola's solicitors (see [35] above). On 11 June 2015 JDC Lawyers sent a second letter to Walsh & Blair attaching a further copy of their letter of 14 April 2015 and requesting that they provide Nicola with a copy of that letter and "obtain instructions". Walsh & Blair responded on 7 July 2015 requesting, among other things, that Nicola, Catherine and Philip sign an agreement providing for the repayment by Philip of principal and interest on the outstanding loan.
11. JDC Lawyers responded to that request on 29 July 2015. Sub-para (a) of that response included: My client has always maintained that he would pay the $250,000.00 to Mrs N Woodhouse, as per earlier correspondence. My client was able to pay the money at the start of the year but only on the understanding that there would be a land "transfer", as discussed for some time. To date, my client has paid some $85,000.00 to $90,000.00 in "interest" on the "loan", and sees no reason why he should be required to pay an additional $15,000.00 in "interest" given he was ready, willing and able to pay the money in February 2015 (prior to the expiration of the lease), but for whatever reason was thwarted from doing so.
12. The reference to Philip having paid "some $85,000 to $90,000 in 'interest'" plainly refers to the interest cheques drawn by Nicola which, with the further payment made by Jane in June 2014, totalled $86,400.
13. Reference should also be made to sub-para (d) of that response which, without withdrawing any of the letter's earlier statements, or statements made in earlier correspondence, records in writing for the first time that Philip disputed that there was a loan agreement for an amount of $267,237. What follows, however, does not deny the existence of some loan or that payments of interest in relation to that loan had been made by Philip to Nicola. Having referred to the payment of $267,237 into the Landmark S1 account in June 2010, the letter continued: That payment appears to be in satisfaction of the compan[y's] liability of $224,151.10. My client did not receive the benefit of that money. At that time Lorraine Pastoral Co consisted of Mrs N Woodhouse and her (now) deceased husband. As I understand it, the company has now been wound up, following the passing of Mr Woodhouse (senior). Therefore it is not correct to say that there was a loan from Mrs N Woodhouse (personally) to my client. In any event my client never received the amount referred to. Attached is a copy of my client's ANZ Business Classic statement for the period ending 6 September 2010. According to that statement an amount of $43,071.15 was deposited into my client's account, being a transfer from an ANZ account. That amount is probably the highest that any "loan" could be quantified, and, as it is, my client has already paid well in excess of that amount in "interest".
14. The second sentence of this extract does not take account of Philip's earlier instruction to the same solicitors, recorded in their letter of 14 April 2015, that his satisfying the overdraft liability was a condition on which Lorraine had been transferred to him.
15. Returning to the cross-examination of Mr Drummond as to the terms of his letter of 29 April 2015 (see [78] above), questions concerning statements in the letter were put for his response. As to his reference to an understanding that the loan was due to expire on 29 June 2015, Mr Drummond said that understanding came from Nicola. Secondly, he denied that his statement that he was "aware" that Philip had mentioned in the past that he would like to get the loan refinanced had also come from Nicola. Mr Drummond maintained that was incorrect because his knowledge of that fact came from his conversation with Philip (extracted at [76] above). Thirdly, in relation to that evidence, Mr Drummond repeated that he had not seen that letter at the time he swore the earlier affidavit, which was made solely from his recollection. The cross-examiner then put to Mr Drummond that his evidence of that conversation was one of a "series of reconstructed recollections" made in "an attempt to protect [his] professional position". Specifically, it was suggested that Mr Drummond did not want "this Court to get the impression that [he] didn't have such a meeting and that [he] was simply taking Nicola's words for these things and writing to ASB's client without checking with him whether that was the case". Mr Drummond responded "no".

The involvement of Nicola, Philip's bookkeeper and Mr Drummond in the preparation of tax returns and financial records after 30 June 2010

1. As the primary judge observed at J[158], "the written documents that most clearly support the existence of a loan agreement [are] the income tax returns and financial statements". However, her Honour considered that she could not be "confident" that those were documents which Philip understood. This assessment does not take account of communications which Philip may have had either with Nicola or his bookkeeper. Nicola's evidence was that Philip did understand that she was drawing cheques in payment of interest due under the loan, in part because those cheques or that subject were discussed at least in the quarterly meetings had with his bookkeeper. Philip denied such knowledge.
2. Furthermore, the significance of the tax returns, financial statements and cheque butts was not simply as bearing on the likelihood that Philip was aware that there was a loan in respect of which interest was being paid. What those documents clearly record, from the perspective of Nicola's case and evidence, is wholly consistent with the terms of the alleged loan agreement. In addition, the cheque butts record the particulars of each payment to Nicola, and that information had to be analysed and acted on by Philip's bookkeeper, and resulted in those payments being treated in the financial statements and tax returns as payments of expenses of Philip's farming business. The circumstances in which the quarterly income and expense records were prepared, as well as the four-year period over which those records and his accounts recorded the existence of a loan from Nicola to Philip, make it most unlikely, if Philip had not understood from the discussions at Walwa that he had agreed to borrow money from Nicola, that the fact of the loan was not brought to his attention before 2014 as he maintained.
3. According to Philip's evidence his bookkeeper, Ms Neil, would travel to Nicola's house every three months to participate in the preparation of his BAS. Jane's evidence was that after she became involved, on the occasions on which Nicola, Ms Neil and Philip were present Ms Neil would input income and expense and other information into accounting software which enabled the ready preparation of statements of income and expense. In his affidavit Philip said that he gave his records to Ms Neil so she could enter information into the computer, and that he also saw her enter records of receipts and payments which Nicola had in her office. The summarised information was then provided to Mr Drummond. He submitted the BAS, and on an annual basis prepared financial statements and tax returns.
4. Each of the cheque butts for the payments made by Nicola to herself in payment of interest or repayment of principal identified Nicola as the payee and described the purpose of the payment as being either interest on money lent to Philip or a repayment of loan. In that way, the bookkeeper was made aware or reminded that there was a loan from Nicola to Philip (as was recorded in the 30 June 2010 balance sheet), that Nicola was drawing cheques in favour of herself in payment of interest on that loan, and that one cheque had been drawn in part repayment of principal.
5. Philip's case, as put in cross-examination to Nicola with respect to these records and the payment of interest, was that the payments were being made and recorded as being for interest in circumstances where no such loan agreement had been made or loan advanced. As the cross-examiner put it, Nicola's "plan since 2010 [was] to pretend there was a loan, to hope Philip accepts it or if he doesn't accept it, [that he] just gives in and pays [her] the money". Nicola described that proposition as "ridiculous", which it would be if the evidence of Nicola and Mr Drummond as to the conversations at Walwa is accepted.

Disposition of ground 1

1. In my view, the evidence of Nicola and Mr Drummond as to what was said in the meeting with Philip at Walwa in June 2010 set out and considered above establishes on the balance of probabilities that a loan agreement was made on the terms alleged by Nicola. It follows that I consider the primary judge to have erred in not being persuaded to make a finding in those terms (cf J[165]).
2. Nicola's evidence is corroborated by the evidence of Mr Drummond, except in respect of whether anything was said about the duration of the loan. Otherwise, on the evidence of each the loan was to be in the amount of the maturing term deposit and to be applied to pay out the outstanding overdraft before 30 June 2010. Interest was to be charged at an annual rate of 8%. Where nothing more was said as to how that interest was to be calculated, it would be calculated annually and payable at the end of each annual period to which it related.
3. Dealing first with Mr Drummond's evidence and whether it should be accepted, the primary judge assessed him to be a "witness genuinely trying to give his recollection of events" (J[136]). As the summary of his evidence at [67]-[72] above shows, notwithstanding that a period of 11 years had passed he claimed a recollection of what was said at Walwa as to the amount of the loan, as to its being applied to pay out the overdraft, as to the interest rate to be charged, and as to there being consensus between Nicola and Philip that she would lend and he would borrow that amount.
4. That there was agreement at Walwa as to the terms of a loan to be made by Nicola to enable Philip to pay out the overdraft is most likely having regard to the context in which that meeting occurred, the events which preceded it and the conduct which followed it. For the most part, the evidence of that context, those events and that conduct is not seriously contestable.
5. First, the gift by Garry to Philip of the Lorraine property was on the condition of Philip agreeing to "take on" the overdraft liability of the trading trust's Landmark S1 account of some $220,000 (see [35]-[41] above). An admission as to that being the position was made by JDC Lawyers' letter dated 14 April 2015. The fact of such an arrangement was only consistent with that condition having been proposed by Garry and agreed to by Philip. The conversation between Garry and Philip deposed to by Nicola as having occurred in 2009 is to that effect, and a finding should have been made that there was a conversation in those terms. Such a finding is consistent with the primary judge's observation at J[160] that "there may well have been" such a discussion.
6. Secondly, the application to the ANZ Bank for a loan is only sensibly explained as made to enable Philip to comply with his obligation to "take on" the overdraft liability by discharging it with borrowed funds. The described purpose of the loan as communicated to the bank makes that clear. The only real controversy was as to whether Philip understood the general nature of the application made and its purpose. For the reasons at [46]-[49] above, the suggestion that Nicola was "going behind Garry's back" in pressing the loan application was to be rejected.
7. Thirdly, with respect to Philip's cognitive functioning, for the reasons at [52]-[55] above the evidence justifies the inferences and findings at [57] above. It follows that I do not agree with the primary judge's finding at J[160] that it was unlikely that Philip understood or would have understood what was involved in taking over the trading trust's overdraft liability, both at the time he had the discussion with Garry and in 2010 when he met with Mr Toole of the ANZ Bank. Philip having a general but sufficient understanding of what was sought from the ANZ Bank and proposed by its offer letter also finds support in Mr Drummond's evidence as to his conversation with Philip about that letter and before the Walwa meeting (see [50] above). Nor, as appears below at [104], do I agree with the primary judge's observation at J[162] with respect to Philip's knowledge of the loan in 2014.
8. Fourthly, Mr Drummond's recollection of his conversation with Philip in his Wagga Wagga office in September 2014 should be accepted as reliable. The primary judge at J[161] suggests that any statements made by Philip at this time should be treated with caution as "likely to have been the product of things said to Philip by Nicola rather than [the product of] his actual understanding that he was a party to a loan agreement", thus neutralising the evidentiary value of those statements as admissions consistent with there being such an agreement and his being aware of it. I respectfully do not agree, especially in circumstances where it should be found: that Philip agreed to undertake the overdraft liability as a condition of receiving the gift of Lorraine; that Philip participated in the making of the loan application to the ANZ Bank for a purpose which included borrowing an amount to discharge that liability; that Philip did so understanding that this was the effect of what he was seeking to achieve; and that thereafter Philip participated in discussions at Walwa in which he agreed to borrow the term deposit from Nicola on the understanding that it would be used to pay out the overdraft liability.
9. Fifthly, I do not agree with the primary judge's assessment at J[162] of the evidence of Philip's reaction in 2014 to his wife Jane's having drawn a cheque in payment of interest. Jane's evidence of that response is summarised at [79]-[80] above. The evidence that Philip "got cranky" and said that he did not have a loan and did not borrow money from his mother falls to be considered in the light of the matters at [85]-[89] above. Philip's conduct and that of his solicitors on his instructions is not consistent with him having a clear or any understanding that he was not a party to a loan agreement under which Nicola was entitled to interest payments. In particular, the statements in JDC Lawyers' letter of 29 July 2015 commencing "To date, my client has paid…" (extracted at [86] above) suggest otherwise. The "interest" payments referred to are those in fact made to Nicola and the "loan" is that in relation to which that "interest" was paid.
10. There remains the question whether Nicola's recollection and evidence that the loan offered and agreed was for a duration of five years should be accepted. The primary judge was not persuaded that the loan was repayable on a fixed date (J[166]). Apart from her Honour noting at J[47] that there was nothing which independently corroborated Nicola's assertion as to the duration of the loan, her Honour's reasons do not address why she was not so satisfied.
11. Whether Nicola's evidence as to the duration of the loan should be accepted arises in circumstances where, for the reasons given above, Mr Drummond's evidence of the Walwa conversation should be accepted. There is no reason why Nicola's evidence to the same effect should not also be accepted on the basis that it is corroborated by the evidence of Mr Drummond. Relevantly, that leaves her evidence as to the duration of the loan.
12. In circumstances where a loan agreement was undoubtedly made, Mr Drummond's evidence leaves open the possibility that something was said as to the duration of the loan which he has not remembered. That accommodates Nicola's evidence as the only evidence on that subject.
13. However, in addition to that evidence there were three matters against which the plausibility and reliability of Nicola's recollection in that respect might be assessed.
14. The first is that five years was also the period over which Philip was given the use of the other two properties, Colongolong and Cotterills, under leases from Catherine and Nicola. In the 2009 conversation Nicola recalled Garry saying that Philip "was getting five years worth of the lease" and would have "the use of the whole three farms because [he had] taken on the overdraft and any other liabilities of the trading trust" (see [30] above). There was commercial sense in Philip having the benefit of the loan for the same period as he had the use of the three farms. That was so notwithstanding that the leases as granted were to terminate on 28 February 2015. As matters turned out the transfers of the plant, machinery and inventory of the trading trust to Philip were made with effect from 30 June 2010. According to Mr Drummond's evidence (see [58] above), that could not occur until the overdraft was paid out, presumably because the overdraft was secured by a stock mortgage (see [59] above). In summary, the overall arrangement would allow Philip to have five years to generate sufficient capital to repay the loan from Nicola.
15. The second is Mr Drummond's evidence, confirmed by his letter dated 29 April 2015, that he then understood that the loan was "due to expire" on 29 June 2015, five years after it was made. The evidence establishes that he gained that understanding from Nicola, but does not say anything about when Mr Drummond first had that understanding, which must have been from some time before April 2015 (see [90] above). The fact that Nicola communicated that understanding to Mr Drummond lends support to her evidence that five years was the duration of the loan agreed in circumstances where there in fact was a loan agreement rather than the loan merely being a fiction created by Nicola from the outset. In this context, it was not suggested to Nicola that if there was a loan agreement it was not for a period of five years.
16. The third matter is the existence of the handwritten "Loan Agreement" bearing a date in September 2010 which refers to the principal being repayable "by 1 July 2015 or earlier upon 6 months notice" (see [64]-[65] above). The evidence concerning the circumstances in which that draft was prepared suggests that Nicola communicated to one of the accountants her concern to formalise an agreement already made, describing what she recalled to be the terms as discussed with Philip. The reference to the loan being repayable by 1 July 2015 in substance describes a loan of five years. The reference to "6 months notice" does not detract from that conclusion. The existence of the draft document as drawn in September 2010 and its correspondence with the oral agreement alleged provides support for the reliability of Nicola's recollection.
17. There remains the question whether the primary judge, having had the advantage of seeing and hearing Nicola's evidence, albeit by video link, made any general adverse finding as to her reliability or credibility as a witness. Her Honour did not in terms do so, describing Nicola's evidence as follows (J[134]): I found Nicola to be forthright and at times argumentative and confrontational in cross-examination. Nicola was adamant as to her recollection of events and not prepared to concede matters against her interest. Nicola had a forceful personality and it is quite plausible to me that she would have taken control of Philip's financial affairs on the basis that she knew best for him or his family.
18. That evidence certainly showed that Nicola continued to have an active role in Philip's banking, legal and taxation affairs, decreasing after Philip's marriage to Jane in September 2012 and ending in mid-2014 when relations between them broke down completely. However, the primary judge does not find that Nicola was dishonest in her undertaking those affairs. In respect of Philip's claim to recover funds drawn by Nicola from his account to pay interest or her expenses, the primary judge found that there was a breach of duty but did not make a finding that the breach was fraudulent (J[188]). In one respect, her Honour was not prepared to accept Nicola's evidence where it was the only evidence on a subject. That was as to whether Philip had agreed to pay Nicola's motor vehicle expenses in relation to the farm (J[188]).
19. Nicola's evidence as to the duration of the loan agreement is not of that character. It was not addressing a matter that was solely in the interest of Nicola, and necessarily contrary to the interest of Philip. More fundamentally, Nicola's evidence as to the negotiation of the terms of the loan agreement at Walwa is corroborated by that of Mr Drummond and, to the extent that her recollection goes beyond his in relation to the duration of the loan, the plausibility and reliability of her evidence is supported by the three matters considered above.
20. For these reasons, ground 1 is made out.

Ground 2 (limitation defence and authority to make interest payments)

1. It is accepted that if Nicola's pleaded loan agreement is made out, this ground does not arise. That is because the obligation to repay that loan arose on 29 June 2015, five years after the loan was made out, and the proceeding was commenced on 31 August 2018, well within the six-year period for doing so under Limitation Act, s 14(1). The issue as to Nicola's authority to make interest payments to herself need only be determined in the event that there was a binding loan agreement in respect of a loan repayable on demand so as to raise the question whether the cause of action had been confirmed by reference to Limitation Act, s 54(2)(a)(ii).
2. Had there been a loan agreement, but not one expressed to be for a fixed term, it did not follow that the loan had to be payable on demand. First, it was to be considered whether as a matter of construction of the oral contract it was necessary for business efficacy to imply a term that the loan was not repayable without notice (see VL Finance at [53]). That was certainly an arguable proposition having regard to the circumstances in which and the purpose for which the loan was made. If such a term was implied, the relevant limitation period would not have commenced to run until demand was made.

Conclusion

1. Philip submits that in the event that Nicola's appeal succeeds, the Court would only give judgment for an amount of $120,751.10. That amount is calculated by the formula x - y - z where x is $224,151.10 (the amount of the outstanding overdraft as at 28 June 2010); y is $17,000 (the amount by which the principal was reduced on 13 May 2013); and z is $86,400 (the sum of the eight interest payments drawn by Nicola and the payment of $15,000 made by Jane).
2. This calculation assumes that the recoverable loan was only for the amount of the outstanding overdraft as at 28 June 2010; and that there was no interest payable on the loan of that amount. For those reasons, the sum of the payments made (being y + z in the formula) is treated as reducing that lower principal amount. Each of these assumptions is inconsistent with the terms of the loan agreement which I have found was made (see [96] and [97] above). The first is also inconsistent with the case made in cross-examination of Nicola (see [61] above).
3. It follows that there should be judgment for Nicola against Philip on her claim for unpaid principal of $250,000 and interest at the rate of 8% per annum calculated from 1 October 2014; and that the judgment in favour of Philip against Nicola on his cross-claim for $119,737.13 should be reduced by the sum of the eight interest payments drawn by Nicola and a repayment of principal of $17,000.
4. That reduction should be made because those amounts were properly due under the loan agreement as found and have been taken into account in calculating the amount for which judgment is sought, both as to the principal amount (reduced by $17,000) and the date from which interest is to be paid on that amount (being 1 October 2014). However, those deductions should not include the $15,000 paid by Jane.
5. The primary judge arrived at the amount of $119,737.13 by starting with the amount claimed, $147,482, which was the total of the 60 payments particularised in para. 10 of the Second Further Amended Statement of Cross-Claim. Those payments included the eight payments drawn by Nicola totalling $71,400 and the repayment of principal of $17,000 made on 13 May 2013. They did not include the interest payment made by Jane on 23 June 2014. Accordingly, Philip's judgment for $119,737.13 on this cross-claim should be reduced by $88,400, leaving a judgment in his favour of $31,337.13 plus interest as claimed.
6. Accordingly, the orders I propose are: 1. Appeal allowed. 2. Set aside orders 1 and 2 made on 4 March 2022. 3. Judgment for Nicola Woodhouse against Philip Woodhouse on the statement of claim for $250,000 plus interest at the rate of 8% from 1 October 2014. 4. Judgment for Philip Woodhouse against Nicola Woodhouse on the cross-claim in the sum of $31,337.13 by way of equitable compensation plus interest thereon as claimed. 5. Set aside orders 1 and 2 made on 25 March 2022. 6. Order that Philip Woodhouse pay Nicola Woodhouse's costs of the statement of claim on the ordinary basis. 7. Order that Nicola Woodhouse pay 20% of Philip Woodhouse's costs of the cross-claim against her on the ordinary basis. 8. Order that Philip Woodhouse pay Nicola Woodhouse's costs of the appeal on the ordinary basis.
7. MITCHELMORE JA: I agree with Meagher JA.

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