Zhao v Wu (No 2)

By amended summons filed in Court on 13 November 2019, Ying Zhao, the plaintiff, seeks to have a judgment entered against her in the Local Court set aside pursuant to s 39 of the Local Court Act 2007 (NSW). She also seeks an order that the proceedings brought against her in the Local Court by Jao Wu, the defendant, be dismissed. In the alternative, she seeks an order that the matter be remitted to the Local Court to be determined in accordance with the law.

Ms Zhao and Mr Wu are siblings. The proceedings arise out of a loan made by their parents to Ms Zhao in 2002. As Mr Wu was the plaintiff in the Local Court and is the defendant in this Court and Ms Zhao was the defendant in the Local Court and is the plaintiff in this Court, it is convenient to refer to the parties by name rather than by any other description.

This Court’s jurisdiction arises under ss 39 and 41 of the Local Court Act which relevantly provide:

Ms Zhao relies on the following three grounds, each of which was accepted to raise a question of law:

On 23 August 2019, Mr Wu filed a notice of contention, which contained the following ground:

The notice of contention was filed out of time. There was no opposition to an extension of time being granted for the filing of the notice of contention.

Whether the limitation defence can be determined in this Court or must be remitted to the Local Court for that purpose, turns on the relevant facts which are set out below.

On 21 November 2002, the parties’ parents lent Ms Zhao $73,000. The loan agreement was in Mandarin. The parties agreed that the following translation of the loan agreement was correct:

It was common ground that the agreement ought be construed by reference to the written document and that, subject to one exception, its construction was not affected by the surrounding circumstances: cf. Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 (Mason J); [1982] HCA 24 (Codelfa). The sole exception was the circumstance that the agreement was not drafted by lawyers.

It was common ground that repayments had been made at the times as set out below, leaving a balance outstanding, as at 14 August 2005 of $56,600:

On 31 May 2010, the parties’ mother died and on 28 July 2014 the parties’ father died. Mr Wu became the executor of his father’s estate. In this capacity, on 26 May 2017, he demanded repayment of the outstanding balance of the loan from Ms Zhao who did not accede to his demand.

On 21 June 2017 Mr Wu commenced proceedings against Ms Zhao in the Local Court. In paragraph [4b] of the statement of claim, he alleged that it was a term of the agreement that Ms Zhao “would repay the loan at any time”.

In a defence filed on 8 July 2017, Ms Zhao alleged that she had repaid the whole of the balance outstanding on the loan on 18 July 2009. The magistrate’s rejection of this defence need not be considered further as it is not the subject of challenge in this Court. Ms Zhao also relied on a defence under the Limitation Act 1969 (NSW).

There is no right of reply in the Local Court although a reply may be filed by leave: Uniform Civil Procedure Rules 2005 (NSW), r 14.4(2). Mr Wu did not seek leave to file a reply. However, in his case summary, he responded to the limitation defence as follows:

Mr Lee, who appeared on behalf of Mr Wu, confirmed that the novation point (in [6] of the summary extracted above) was no longer pressed in this Court. Mr Wu’s position on the limitation defence remains as set out in [7] of the summary: namely, time did not run until a demand was made.

The proceedings were heard by Price LCM. On 19 December 2017, Price LCM ordered judgment in favour of Ms Zhao as he was not satisfied that any debt owing passed to the estate of the parties’ father. Mr Wu appealed to this Court pursuant to s 39 of the Local Court Act, alleging that Price LCM had failed to provide adequate reasons for the decision. The appeal was upheld and the matter remitted to the Local Court for determination according to law: Wu v Zhao [2018] NSWSC 1182 (Davies J). Ms Zhao was ordered to pay Mr Wu’s costs. Davies J’s orders included an order that “the costs of the proceedings in the Local Court be determined by the magistrate who hears the remitted proceedings”.

On remitter to the Local Court, the matter was heard by Barko LCM on 13 and 14 May 2019. Judgment was delivered ex tempore on 14 May 2019 and 14 June 2019. The reason for the time between the dates on which judgment was delivered was that a Mandarin interpreter was not available on 15 May 2019. It is plain from the transcript that Barko LCM did not have, on 14 June 2019, the transcript either of the proceedings or of the first part of the judgment which had been delivered on 14 May 2019. After pronouncing reasons, which did not address the limitation defence, the Local Court entered judgment for Mr Wu in the sum of $57,939 (being the amount which was ultimately claimed) plus pre-judgment interest and ordered Ms Zhao to pay Mr Wu’s costs “of both sets of the Local Court proceedings on the ordinary basis as agreed or assessed”.

As the magistrate did not determine the limitation issue, grounds 1 and 2 have been made out. It was common ground that the limitation defence turned solely on the question of construction of the loan agreement, and that, accordingly, I could determine the proceedings finally in this Court.

Mr Condon SC, who appeared on behalf of Ms Zhao, contended that the usual rule as to the running of time for actions in debt had not been displaced and that the cause of action had been extinguished by August 2011, being six years from the date of the last payment, which operated to extend time under s 54(2)(a)(ii) of the Limitation Act.

Mr Lee contended that the reference to the purpose of repayments (“to let our aged parents use their money when they are alive”) and the time of the repayments (“any time as required”) displaced the general rule. He submitted that the effect of the wording of the provision was that time did not begin to run unless and until there was a demand and that the usual rule that time starts to run when the money was advanced had been displaced because the parties had contracted out of the usual rule.

Mr Lee argued that as there was no evidence of any demand having been made before 26 May 2017 (when Mr Wu demanded repayment from Ms Zhao on behalf of his father’s estate), time did not start to run until that date. He contended that, as the proceedings were commenced shortly after this demand, they were within time.

There are three provisions of the Limitation Act which are presently relevant. Section 14 provides for a general limitation period of six years. Section 54 provides that if a person against whom another person has a cause of action confirms the cause of action after time has started to run but before it has expired, the time starts to run again from the time of the confirmation. It relevantly provides that payments have the effect of confirming the cause of action: s 54(2)(a)(ii). Section 63 provides that actions in debt are extinguished on the expiry of the limitation period.

The authorities establish that a loan of money repayable on demand creates an immediate debt, upon which a suit may be brought: Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 566; [1956] HCA 51. The law distinguishes between a claim for a debt and a claim for breach of contract. In the former case, the cause of action is complete (and time begins to run) as soon as the money is advanced; in the latter case, the cause of action arises (and time begins to run) only on breach. In Young v Queensland Trustees Ltd, the High Court (Dixon CJ, McTiernan and Taylor JJ) said at 567:

Thus, the defendant bears the onus of proving payment (by way of defence) in an action in debt: Young v Queensland Trustees Ltd at 570. Had the action been one for breach of contract, the plaintiff would bear the onus of proving non-payment as a breach.

Both parties accepted that the applicable law was as stated by Fullagar J in Ogilvie v Adams [1981] VR 1041 at 1043, following Young v Queensland Trustees Ltd:

His Honour’s formulation has often been cited and applied: see, for example, In the matter of Italasia Pty Ltd [2017] NSWSC 811 at [13]-[18] (Brereton J).

The prevalence of commercial loan agreements which have been drafted with the express intention of displacing the usual rule may tend to obscure the force and effect of the usual rule. The recent case of Fischer v Nemeske Pty Ltd [2015] NSWCA 6 is instructive as to what is required to displace the usual rule. In that case, one clause in a deed of charge (cl 5) provided that monies were to be repayable on demand. Another clause (cl 7) provided that monies would become payable “without the necessity for any demand or notice upon [the Trustee] … upon the happening of each of any of the following events [of default]”. The primary judge concluded that the usual rule had been displaced in relation to cl 5, reasoning that that there would otherwise have been no point in the parties making provision in cl 7 as to circumstances in which no demand was required: Fischer v Nemeske Pty Ltd [2014] NSWSC 203 at [174]-[182] (Stevenson J). The Court of Appeal disagreed with the primary judge’s conclusion and held that the language of the provisions was not sufficient to displace the usual rule: [93]-[100] (Barrett JA, Beazley P and Ward JA agreeing). An appeal by Fischer to the High Court did not challenge this finding: Fischer v Nemeske Pty Ltd (2016) 257 CLR 615; [2016] HCA 11 at [12(5)] (French CJ and Bell J).

In the present case, I am not persuaded that there is anything that would be sufficient to displace the usual rule. I do not regard the words, “in order to let our aged parents use their money when they are alive”, as being any more than verbiage. They are manifestly insufficient to create a condition precedent to payment or an implied term to that effect: Codelfa at 346-347 (Mason J). The preceding words, “any time as required” are no more than the lay equivalent of “on demand” or “on request”. Thus the present case falls squarely within the usual rule (as addressed in the first part of the extract above from Fullagar J’s judgment) rather than the exception (as addressed in the second part of the extract).

Thus, the parties’ parents’ cause of action against Ms Zhao in respect of the debt accrued on 21 November 2002, at the time the loan was advanced. By reason of s 54(2)(a)(ii) of the Limitation Act time started to run again when each repayment was made. The last repayment was made on 14 August 2005. The applicable limitation period was six years: s 14 of the Limitation Act. On the expiry of the limitation period, 14 August 2011, the debt was extinguished: s 63 of the Limitation Act. As the parties’ mother died before the debt was extinguished her chose in action for the outstanding debt passed to her estate. However, the parties’ father’s chose in action was extinguished before his death in 2014 and therefore could not pass to his estate since there was nothing to pass. Accordingly, ground 3 of the amended summons has been made out. The judgment in the Local Court cannot be supported on the basis alleged in the notice of contention and must be set aside.

The authorities establish that, although this Court has no jurisdiction to make findings of primary fact when exercising jurisdiction under ss 39, 40 or 41 of the Local Court Act, it is entitled to determine questions of law: see, for example, the authorities referred to in Rose v Tunstall [2018] NSWCA 241 at [26]-[32] (Payne JA, Basten JA and Simpson AJA agreeing). If the result on remitter would follow inexorably from the determination of those questions of law, this Court is entitled to vary the terms of the judgment or order under s 41(1)(a) rather than remit the matter to the Local Court under s 41(1)(c).

It follows from the analysis set out above, that there was only one legally available result once Ms Zhao pleaded the limitation defence: that Mr Wu’s claim was bound to fail as the defence was necessarily made out. This conclusion does not depend on any matter of fact but, rather, turns on the construction of the loan agreement and the determination whether the usual rule had been displaced. Thus the orders to be made are necessary in law: see, in a different but analogous context, Wende v Horwath (NSW) Pty Ltd (2014) 86 NSWLR 674; [2014] NSWCA 170 at [101] (Basten JA). In these circumstances, this Court’s jurisdiction extends not only to making an order setting aside the judgment of the Court below but also to entering judgment in favour of Ms Zhao in the Local Court proceedings. The terms of s 41(1) of the Local Court Act contemplate that this Court may set aside a judgment of the Local Court and not remit it to the Local Court. I am satisfied, and the parties agreed, that this is a course which is available and appropriate in the present case.

The parties agreed that costs ought follow the event in this Court and in the Court below. Mr Lee sought a certificate under s 6 of the Suitors’ Fund Act 1951 (NSW). It is appropriate that such a certificate be granted as Mr Wu did not contribute to the magistrate’s failure to address the limitation defence.

For the reasons set out above, I make the following orders: