MacPhail v MacPhail

1. [1]

   This is an appeal from a judgment of a magistrate in the Local Court given on 12 December 2016. The proceedings concerned a loan made by the Plaintiff on 7 February 2013. The lender, who is the Defendant in this Court, was the mother-in-law of the Plaintiff in this Court to whom the loan is alleged to have been made. The daughter-in-law alleged that the loan had been made by her mother-in-law to the daughter-in-law’s then husband, the son of the lender.

2. [2]

   For ease of reference and without intending any disrespect I shall refer to the present Defendant as the mother, to the present Plaintiff as the wife and to the mother’s son James as the son.

3. [3]

   I should also say at the outset that counsel for the wife was critical of the Magistrate for having used the term “loan” from the beginning of his judgment when a significant issue in the case was said to be whether the wife had a legal obligation as opposed to a moral obligation to repay the money if a loan was made to her. The suggestion was that the magistrate had pre-judged the matter he had to decide. In referring to the transaction as a loan it needs to be understood that I am using the term “loan” as a convenience on the basis that the claim in the proceedings was that a loan had been made.

Background

1. [4]

   The son and his wife established a self-managed superannuation fund known as J & G MacPhail Superannuation Fund. The fund was subject to an Australian Taxation Office audit in or about late 2012. The fund was in breach of the law because monies from the fund were used for non-compliant purposes. The son and his wife were both trustees of the fund.

2. [5]

   The mother alleged that in about January 2013 the son and his wife went to the mother’s home in Prince Alfred Parade, Newport. The following conversation took place:

3. [6]

   The amount specified by the accountants for the superannuation fund, F L Dunn & Associates Pty Ltd, to replace the amounts wrongfully taken was $90,357.62. On 6 February 2013 the mother wrote a cheque for that amount payable to the superannuation fund.

4. [7]

   The wife denied that she had been present when there was any discussion with the mother about the loan. She said that the discussion was only between the son and the mother. She said that any loan was made only to the son.

5. [8]

   On 14 May 2013 a letter was sent from the son and his wife to the ATO concerning the funds taken from the superannuation account. The letter said in part:

6. [9]

   The son and the wife separated on 22 July 2014. In the family law proceedings which ensued the wife filed a Financial Statement which in the section headed “Loans” identified the mother as the lender and the wife’s share of the loan as $40,000.

7. [10]

   Demands were made by the mother to the wife for repayment of the loan. According to the mother’s evidence, in July and August 2014 and on two subsequent occasions the wife said she would repay the money.

8. [11]

   On 22 March 2016 solicitors acting for the mother forwarded a letter of demand to the wife requiring payment of the sum of $45,178.81 within seven days from the date of that letter. No response was received to that letter.

9. [12]

   On 6 April 2016 the son paid the sum of $55,000 to the mother being $45,178.81 in respect of the loan to the superannuation fund, further monies borrowed by the son of $8,000 and interest of $1,821.19.

10. [13]

    On 12 April 2016 the mother commenced proceedings in the Local Court against the wife claiming $45,178.81.

11. [14]

    The Defence filed by the wife on 10 June 2016 denied that she requested a loan from the mother or that the mother loaned her the amount of $45,178.81. The wife pleaded that both the request for the loan was made by the son and the loan was advanced to him.

12. [15]

    The matter was fixed for hearing in the Local Court on 7 November 2016.

The Magistrate’s judgment

1. [16]

   The Magistrate delivered a reserved judgment on 12 December 2016 where he found a verdict and judgment for the mother against the wife in the sum of $45,178.81 together with interest to be calculated under the Civil Procedure Act 2005 (NSW) from 25 December 2014.

2. [17]

   In paragraphs [1]-[11] the Magistrate summarised the background, the making of the loan, the letter of demand and the denial by the wife of any liability for the loan. In the light of the grounds of appeal and matters raised in submissions, it is necessary to set out most of the rest of the judgment. The learned Magistrate went on to say:

3. [18]

   His Honour then set out extracts from the judgment of Ward J (as her Honour then was) in Darmanin v Cowan [2010] NSWSC 1118 from [205] to [210].

4. [19]

   His Honour went on to say:

The appeal

1. [20]

   The summons set out three grounds of appeal as follows:

2. [21]

   However, in the wife’s written submissions she abandoned ground 2 and sought to add two new grounds of appeal as follows:

3. [22]

   At the commencement of the hearing of the appeal counsel for the wife sought to file in court an amended summons which contained grounds 1 and 3 in the original summons, omitted ground 2, and contained ground 4 set out above omitting the words “give proper (or in fact any) weight to, or” in lines one and two of that ground as set out above. The new ground, therefore, read:

4. [23]

   What had been put forward as ground 5 in the submissions was not pursued.

The course of the hearing before the Magistrate

1. [24]

   It is first necessary to set out the pleadings in the matter. The statement of claim pleaded the case as follows:

2. [25]

   The defence was pleaded as follows:

3. [26]

   On 6 November 2016 the wife by Notice of Motion dated that day sought to insert a further paragraph to her defence which read:

4. [27]

   The first witness was the son. His evidence in chief was an affidavit that he had sworn. He was then cross-examined by Mr Hay, counsel for the wife. During the cross-examination counsel asked the son if he ever at any stage thought of having the agreement to lend him the money and repay the money reduced to writing. Counsel for the mother, Mr Phillips, objected and said:

5. [28]

   A little further on in the cross-examination the son was asked whether his mother indicated to him that if he did not pay by a certain time she would send letters of demands to him. No objection was taken to that question although its relevance to what was the only issue, as Mr Phillips had earlier said, was far from clear. The transcript then disclosed the following answer and the subsequent questions as follows:

6. [29]

   When the mother gave evidence questions were put to her in cross-examination that she lent the money as a good mother to her son and his wife, to which the mother replied that it was on the understanding that they would repay it when she asked them for it.

7. [30]

   A little later the following exchanges occurred:

8. [31]

   It is difficult to see the first of those questions as being other than a question related to the matter of moral obligation as opposed to legal obligation. Again, no objection was taken by counsel for the mother to that line of questioning but that may have been because the Magistrate had earlier allowed other questioning which went outside the issue defined in the pleadings.

9. [32]

   The affidavit sworn by the wife on 24 August 2016 said this in its entirety:

10. [33]

    It can be seen that, consistent with the only issue raised in the defence, the affidavit dealt only with the claim that, if there was a loan it was made to the son. The statements in paragraphs 9 and 10 were less than frank because, to the wife’s knowledge, the funds from the mother went into the joint superannuation account.

11. [34]

    When the wife was cross-examined, she was taken to the Financial Statement filed in the Federal Circuit Court in the family law proceedings. The following exchange occurred:

12. [35]

    In re-examination the following questions and answers were recorded:

13. [36]

    Although objection was taken unsuccessfully that the question did not arise from cross-examination, no objection was taken earlier on the basis that the questions were irrelevant to the issue between the parties. In particular, it is difficult to see how the question “Do you consider yourself legally obligated to pay it?” in respect of a loan to her brother was admissible on any basis.

14. [37]

    The evidence given in re-examination, if it was to be given at all in support of the issue that seemed to have emerged of whether the obligation was a legal or moral one, ought to have been evidence in chief to enable any cross-examination on it. However, it is difficult to see how counsel for the mother would have been able to cross-examine on it when it concerned an arrangement between the wife and a third party. That tended to suggest its lack of relevance even to the second issue that had emerged during the evidence.

15. [38]

    It can be seen from the way the matter developed during the hearing, the issue that had been ruled out by the Magistrate on the preliminary application had made its way back into the hearing, partly as a result of the disallowance by the Magistrate of a perfectly proper objection by counsel for the mother that the only issue raised by the defence or even the wife’s affidavit was whether the loan was made to the son only or to both of them. It should be noted, in fairness, in any event, that the case presented by the mother differed from the case pleaded in the statement of claim. There was never an agreement for a loan of $45,178.81, nor was there a request by the wife for such a loan. However, that had no effect on the one issue that the pleadings identified.

16. [39]

    It would have to be concluded, therefore, that without any real objection, the parties came to accept that the case was to be fought on the evidence that was given, being the agreement for a loan of $90,357.62 from the mother to the son and the wife, and that, even though the Magistrate had formerly ruled against it, there was an issue about whether any such loan, if made to both the son and the wife, gave rise to a legal or only a moral obligation to repay.

17. [40]

    Counsel for the wife submitted that the issue of whether there was a contract and a legal obligation to repay the money was within paragraph 5 of the Defendant’s defence. Clearly, however, paragraph 5 is a plea of the general issue which r 14.20 Uniform Civil Procedure Rules 2005 (NSW) forbids. Such a pleading could not be relied upon to encompass a specific defence such as emerged during the hearing: r 14.14 UCPR.

18. [41]

    It is clear that the case proceeded before the Magistrate well outside the single issue raised on the pleadings as identified by counsel for the mother when he took objection to a question asked of the son. However, as has been made clear, where a case is run in a particular fashion despite the pleadings and is decided in accordance with the way in which it was run, the results should be upheld unless some injustice is done: Southwick v Moores Stephens Melbourne Pty Ltd [2008] VSCA 164 at [30]; Commissioner of Taxation v Normandy Finance & Investments Asia Pty Ltd [2016] FAFC 180 at [143].

19. [42]

    Accordingly, it is necessary to consider the grounds of appeal in reference to the issues that were actually litigated before the Magistrate. Broadly, those issues were, first, whether the wife was a party to the loan agreement and, secondly, if she was, was a legal obligation created by the arrangement or was it simply a moral obligation to repay the money? It should be noted, however, that the grounds of appeal did not concern themselves with the finding that the wife was a party to the arrangement. That determination by the Magistrate appears to have been accepted. The real issue concerned whether the wife had a legal obligation to repay, with considerable emphasis being placed on the evidence given by her in re-examination.

Submissions

1. [43]

   The wife submitted that the mother failed to prove her case that the son and the wife had entered into a binding legal agreement because she failed to rebut the presumption that in the family context the parties objectively did not intend to enter into formal legal relations.

2. [44]

   The wife submitted that the evidence upon which the Magistrate placed the greatest weight in coming to his decision was the wife's Financial Statement in the family law proceedings. However, the wife submitted that the Magistrate ignored the evidence she gave in re-examination in relation to the debt to her brother which she did not consider herself legally obligated to repay. That evidence supported the evidence she gave in cross-examination that she thought she had a moral, but not a legal obligation to repay the mother.

3. [45]

   The wife submitted that the finding at [19] of the judgment was made before the Magistrate dealt with the presumption discussed in Darmanin v Cowan. In that way, the wife submitted, the Magistrate begged the question he had to decide which was whether there was a legal obligation to repay the money.

4. [46]

   The wife submitted that what she described as the Magistrate’s dispositive reasoning at [24] of the judgment revealed three critical errors of law. First, his Honour failed to deal with the countervailing evidence of the wife that she considered herself only morally obliged to repay the mother, and failed to mention her evidence in re-examination that she had treated the "loan" from her brother in the same way.

5. [47]

   Secondly, his Honour erroneously reasoned that the post-contractual acknowledgement somehow created an obligation in the wife to repay the money. Thirdly, his Honour failed to apply correctly the presumption.

6. [48]

   In relation to the third error the wife’s written submissions asserted that the Magistrate failed to have regard to the son's and mother's evidence of the nature of the arrangement. Significantly, however, in oral submissions the wife said that the only relevant evidence that the Magistrate did not refer to (see particular (a) of ground 1) was the evidence in re-examination.

7. [49]

   Ultimately, the wife submitted that the appeal grounds generally all boiled down to the first appeal ground and to what was alleged to be the failure to refer to relevant evidence, namely the wife’s evidence in re-examination.

Consideration

1. [50]

   Since counsel for the wife submitted that the appeal turned essentially on the first ground of appeal, it is convenient to deal with all of the grounds together. The wife’s principal complaint was that the Magistrate’s reasons were inadequate because no mention was made of the wife’s evidence in re-examination concerning her perception of the type of obligation she had to repay a loan from her brother.

2. [51]

   In Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 Mahoney JA said (at 268, 270 and 271):

3. [52]

   McHugh JA said (at 280):

4. [53]

   In Resource Pacific Pty Ltd v Wilkinson [2013] NSWCA 33 Basten JA (Beazley and Macfarlan JJA agreeing) said:

5. [54]

   Although said in the context of administrative review, it is also relevant to note what Gleeson CJ said in Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002 (2003) 77 ALJR 1165; [2003] HCA 30 at [14]:

6. [55]

   An examination of the Magistrate’s judgment demonstrates the following. His Honour first summarised the claim and the defence followed by setting out the factual material concerned with the making of the loan and what happened subsequently up to the time the mother demanded that the wife repay it: [1]-[11].

7. [56]

   His Honour then went on to examine documentary material where, on the face of that material, the wife appeared to have acknowledged the loan: [14]-[17]. His Honour then dealt with the wife’s evidence in relation to some of that material and made credit findings about her evidence. That led him to the conclusion on the sole issue pleaded in the case concerning whether or not she was a party to the loan: [18]-[19].

8. [57]

   His Honour next considered the issue that emerged during the hearing which he had in any event noted at [14], that is whether any obligation to repay the mother was a moral obligation only. His Honour quoted at length from Ward J’s decision in Darmanin and then went on at [24] to consider whether what had been described as the presumption in Darmanin applied or whether it had been rebutted. His Honour determined at [25] that the presumption had been rebutted. Finally, his Honour summed up his overall findings at [27].

9. [58]

   I do not accept the wife’s submission that the Magistrate prejudged the issue of the legal/moral obligation by referring early in the judgment to a “loan”. It seems clear to me that the Magistrate was first determining the pleaded issue which did not in any way dispute that there was a loan but only to whom it had been made. Having determined that it was made to the wife as well as the son his Honour then went on to consider the second issue. That approach does not seem to me to differ from the approach of Austin J in Gray v Guardian Trust Australia [2002] NSWSC 1218.

10. [59]

    In my opinion, the Magistrate was under no obligation to record and consider every aspect of the evidence. He made an assessment of the wife’s evidence at [19] finding her not to be reliable, at times evasive, and providing answers to assist her case rather than giving truthful and honest answers.

11. [60]

    There were two aspects to the evidence concerning the loan from the wife’s brother. The first was the objective evidence found in the sworn Financial Statement with the Federal Circuit Court and the Applicant’s outline of case and summary of argument filed in the Federal Court to the same effect. The second aspect of the evidence was the wife’s assertion in re-examination that she did not consider that she was under a legal obligation to her brother in respect of that loan. That assertion was not supported by any evidence concerning the circumstances of the loan or the brother’s approach to that loan.

12. [61]

    The evidence was in the first place necessarily dependent upon the Magistrate accepting what the wife said. However, even if he had accepted that evidence as her belief, that was not the end of the matter. In fact, it was hardly the beginning. A person’s subjective intentions are not admissible to determine the proper construction of a contract. In that way the evidence had little if any significance. The wife, in essence, relies on it to say that it somehow corroborates her evidence that she believed the mother’s debt was only a moral obligation. However, her belief about the brother’s debt, even if accepted, did not make the belief true.

13. [62]

    The emphasis on this evidence also appeared to proceed on the false assumption that a finding about the brother’s debt, based on what she said in re-examination, would flow through to the mother’s debt when the issue could only be determined in each case on an examination of the circumstances of the making of each loan.

14. [63]

    As noted, the only other evidence about the matter was the recording of the debt in the Financial Statement and the acceptance in the wife’s Federal Circuit Court submissions that the brother’s debt was a liability. In circumstances where her evidence was clearly not accepted, what she said about her belief in re-examination added nothing to what the Magistrate had to determine.

15. [64]

    On the other hand, his Honour had found that the contents of the Financial Statement were compelling and were made at a time when the Defendant was likely to be making an accurate disclosure of her financial situation including her obligations. In that regard, it is difficult to avoid the conclusion that, if what was contained in the Financial Statement concerning not only the brother’s loan but the loan from the mother was a moral obligation and not a legal one despite the fact that these loans appeared in a section headed “Your Liabilities”, such position being reinforced in the outline of case and summary of argument, the information given to the Federal Circuit Court was dishonest.

16. [65]

    For those reasons, the Magistrate set out the material findings of fact, he did not fail to refer to relevant evidence and did not fail to provide reasons for his findings. His Honour’s reasons clearly appear at [12], [13], [19] and [24] of the judgment. Counsel for the wife drew my attention to the judgment of the Court of Appeal in Pollard v RRR Corporation [2009] NSWCA 110 and to the summary of the propositions expounded in that judgment in Dee Why Auto Clinic and Anor v Roads and Maritime Services [2017] NSWSC 377. I am satisfied that his Honour’s reasons appropriately comply with those propositions.

17. [66]

    The Defendant submitted that ground 1 was really a ground based on factual errors by reason of the assertion that the Magistrate failed to refer to relevant evidence and was required to consider competing evidence and that the ground did not amount to an error of law if made out. Whilst I think there is some force in this submission I am prepared to accept that, overall, ground 1 was concerned with a failure to provide adequate reasons for the decision and that such an error is ordinarily regarded as an error of law. Of course, it may not be an error that results in a remittal of the matter to the decision maker for a redetermination: Repatriation Commission v O’Brien (1985) 155 CLR 422 at 445–446.

18. [67]

    In my opinion, the wife does not demonstrate that the Magistrate’s reasons are inadequate nor that his Honour has failed to refer to relevant evidence.

19. [68]

    Ground 4 raises the same matter in a different guise. Although counsel abandoned the words originally included in the ground “give proper (or in fact any) weight to, or”, in order to remove or minimise any sense that this was not really an error of law, a ground alleging a failure to pay any regard to some piece of evidence will always struggle to amount to an error of law.

20. [69]

    The substance of this ground is a challenge to the fact-finding of the Magistrate in relation to the so-called presumption referred to in Darmanin. There was some debate at the hearing of the appeal about whether there is any presumption that arrangements made in a family context are not intended to be binding. The wife had, at the hearing before the Magistrate, relied on the decision of Ward J (as her Honour then was) in Darmanin. In that case Ward J said:

21. [70]

    The wife also relied on the judgment of Brereton J in Ashton v Pratt (No 2) [2012] NSWSC 3 where his Honour said at [32]:

22. [71]

    On the hearing of the appeal the mother contended that there was no such presumption relying on what the High Court said in Ermogenous v Greek Orthodox Community (2002) 209 CLR 95; [2002] HCA 8:

23. [72]

    It is not strictly necessary to reach a final view about whether there is such a presumption although I incline to the view that the High Court was disapproving of the use of such terminology (with all due respect to Ward CJ in Eq and Brereton J). What is clear, however, that whether the matter is approached from the perspective of presumption or from the starting point of an inquiry (referred to in Ermogenous at [25]), the determination is one of fact. What evidence is considered, given emphasis or not considered of importance is part of the fact-finding exercise.

24. [73]

    A judge or decision-maker is not obliged to accept unchallenged evidence. The evidence may not be considered reliable or may not have significance for issues to be determined. The latter was certainly the case here as the emboldened portion of Ermogenous tends to demonstrate. On the basis of the Magistrate’s credit findings concerning the wife, a lack of reliability may also have been involved. There was no error of law in dealing with this issue.

25. [74]

    The wife’s Amended Summons seeks leave to the extent that any ground is held to involve a mixed question of fact and law.

26. [75]

    The intention of the Local Court Act 2007 (NSW) is that this Court should have supervision over Local Courts ordinarily in matters of law. A party seeking leave to appeal must point to something more than error. In Zelden v Sewell Henamast Pty Limited v Sewell [2011] NSWCA 56 Campbell JA (Young JA agreeing) said at [22]:

27. [76]

    In Jaycar Pty Limited v Lombardo [2011] NSWCA 284 Campbell JA (Young and MeagherJJA agreeing), having repeated his remarks in Zelden above, went on to say at [46]:

28. [77]

    It may be accepted that these cases concerned leave to appeal to the Court of Appeal from the District Court where there was a pecuniary threshold to be crossed before a right to appeal replaced the need for leave. However, the principles are applicable here where matters involving small sums and small disputes are intended to be finalised in the Local Court.

29. [78]

    In the present case, no general principle is involved. It is merely the application in the present case of the principles discussed in Ermogenous and the later cases. In any event, for the reasons given, the wife does not even demonstrate that the Magistrate was arguably wrong in the way his Honour applied the principles. Leave should not be given.

30. [79]

    This ground fails.

31. [80]

    As to ground 3, the wife relies on what might be thought to be a poor choice of words highlighted at [24] of the Magistrate’s judgment. It is nevertheless clear that a reading of the whole of the paragraph make abundantly clear that the Magistrate was not suggesting the acknowledgment created the obligation. He earlier said:

32. [81]

    This ground is not made out.

Conclusion

1. [82]

   I make the following orders:

   1. (1)

      Summons dismissed.

   2. (2)

      The Plaintiff is to pay the Defendant’s costs.