Cant & Cant v Spirit Hill Investments Pty Ltd [1999] QSC 1

No. 5660 of 1998 IN THE SUPREME COURT OF QUEENSLAND Brisbane Before Justice Wilson [Cant & Anor v Spirit Hill Invest. P/L] BETWEEN: AND: MARK DOUGLAS CANT AND SONIA CANT SPIRIT HILL INVESTMENTS PTY LTD (ACN 011 004 685) REASONS FOR JUDGMENT - WILSON J Judgment delivered 13 January 1999 Plaintiff Defendant CATCHWORDS: SUMMARY JUDGMENT - whether money lent to individuals or company - novation - acknowledgement - concessions made in previous proceedings - whether compulsory acquisition amounts to a disposition. Counsel: Solicitors: Hearing Date: Rothwells Limited v Nommack (No. 100) Pty Ltd [1990] 2 Qd R 85. Mr A Heyworth-Smith for the plaintiff Mr D. Kelly for the defendant Lawson Jones for the plaintiff Nicol Robinson Hallets as agents for Davis & Co of Bowen, Queensland for the defendant 19 November 1998 [1999] QSC 1 -- 1 of 9 -- IN THE SUPREME COURT OF QUEENSLAND No. 5660 of 1998 Brisbane Before Justice Wilson [Cant & Anor v Spirit Hill Invest. PIL] BETWEEN: AND: MARK DOUGLAS CANT AND SONIA CANT SPIRIT HILL INVESTMENTS PTY LTD (ACN 011 004685) REASONS FOR JUDGMENT - WILSON J Judgment delivered Plaintiff Defendant The plaintiffs seek against the defendant summary judgment in the sum of $280,035.62 together with interest from 1 June 1998 to the date of judgment. 2 The plaintiffs' claim against the defendant is for the balance of principal and ( compound interest due and owing under a loan agreement. The specially endorsed writ was \ " issued on 24 June 1998. In the particulars of claim the plaintiffs allege: "2. On 1st February 1990, the plaintiffs loaned to the defendant the sum of$lOO,OOO.OO 3. The purpose of the said loan was to assist the defendant in its acquisition of "Spirit Hills" cattle station, in the Northern Territory. 4. In about the month of February 1990, the defendant using such loan moneys and other moneys, acquired the said cattle station. 5. It was a term of the said loan that the loan would become due for repayment when the defendant disposed of the said cattle station. 6. It was a further term of the said loan that the balance due and owing to the plaintiffs at any time or from time to time would attract compounding interest at a rate 2% above the rate then charged by Elders Finance upon unsecured loans at monthly rests. 7. The defendant has disposed of the said cattle station. -- 2 of 9 -- 3 4 5 6 7 2 8. The loan has thereby become due for repayment." The amount for which judgment is sought has been calculated after making an allowance for the payment of$39,958.20 on 1 August 1997. That was comprised of $20,000 principal, and interest calculated at the above rates on a simple interest basis. The dispute between the parties is an extended family dispute relating to the acquisition ofa cattle property by the defendant company. The property was acquired by the company as trustee for the Kelly Hansen Family Trust. The contract of purchase was signed on 20 December 1989 and completed on 1 February 1990. The purchase price was $1.5 million. The principal protagonists in the dispute are Mr Robert Kelly, his former wife Mrs Aina Kelly, Mr and Mrs Hansen and the plaintiffs. The female plaintiff is the daughter of C) Robert and Aina Kelly and the niece of Mrs Hansen (who is Aina's sister). The property was resumed by the Northern Territory Government in November 1994. The plaintiffs invested $100,000 in the project. This was in two parts. $20,000 was paid to the company. According to the plaintiffs this was towards stamp duty and conveyancing expenses, although Mrs Hansen has deposed that the stamp duty was paid by a Hansen company. Be that as it may, the $20,000 seems always to have been treated as a loan by the plaintiffs to the company. The principal has been repaid together with approximately $19,000 on account of interest (the payment made on 1 August 1997 which is referred to above). The dispute centres around the balance of $80,000. In her affidavit sworn on 21 October 1998, the female plaintiff deposed as follows: "8. My husband and I understood that the other $80,000.00 contributed, would gain for us a 10% interest in the Spirit Hill venture." 9. However, this intent could not be fulfilled, as the venturers had caused the defendant to purchase the property as trustee for a discretionary trust, the Kelly Hansen Family Trust. o o -- 3 of 9 -- 8 9 ( 10 ( 11 ~.. 12 3 10. Consequently, by agreement between ourselves and the venturers, our $80,000.00 along with the $20,000.00 abovementioned, was acknowledged as a loan from ourselves to the defendant. 11. It was also acknowledged that such loan should bear interest as from 1st February 1990 at a rate 2% above the rate, charged from time to time by Elders, upon the moneys advanced by Elders to the defendant. " The key issue is whether $80,000 was lent to Mr and Mrs Kelly or to the company. Was the initial agreement subsequently altered, and if so how? The matter is complicated by there being two different sets of accounts and by concessions made by the female plaintiff in proceedings in the Federal Court in Victoria in relation to the setting aside of a statutory demand under the Corporations Law. The first set of accounts are those prepared by the defendant company's accountants for each financial year from 30 June 1990 to 30 June 1996. I note that the accounts for the first five years are headed "Spirit Hill Investments Pty Ltd" while those for the years ended 30 June 1995 and 30 June 1996 are headed "Hansen Kelly Trust". Nothing seems to turn on this. In the balance sheets for the years ended 30 June 1990 - 30 June 1995, various loan accounts are referred to in the list of non current liabilities. Significantly an amount of $100,000 is shown as owing to "M & S Cant" in each of these years. There is no record of interest paid or accrued on that amount. There is also a loan account for "R S & A B Kelly" which varies in amount as follows: 30 June 1990 30 June 1991 30 June 1992 30 June 1993 30 June 1994 30 June 1995 $82,829.58 $67,632.30 $51,959.32 $44,388.04 $30,796.59 $17,796.59 In the accounts for the year. ended 30 June 1996 the amount shown against the loan account for R S & A B Kelly is $111,606.59 while that shown against the account for M & -- 4 of 9 -- 13 14 4 S Cant is nil. The other accounts are handwritten documents prepared by Mrs Hansen. They are headed in the name of the company. They appear to be lists of creditors of the company (including the Kellys and the plaintiffs) prepared on a monthly basis from February 1990 to February 1991, showing the balances of loan accounts and calculations of interest which are then capitalised at the end of each month. There is also a document headed "M & SCant" which covers the period from August 1991 to January 1992, and further documents headed in the name of the company for the months December 1992 - February 1993. Beginning in February 1990 against the names "R S & A B Kelly" is the principal amount of$108,000 and against the names "M & S Cant" is the principal amount of $20,000. The monthly calculation and capitalisation of interest to which I have referred is followed through until February 1991 when the following entries appear: R S & A B Kelly ClFwd TIF toM & S Cant Loan & Int 28 days @ 11.220 M & SCant C/fwd Share converted to loan 28 days @ 59.687 $118,758.81 - 96,006.64 22,752.17 314.16 23,066.33 25,025.65 96,006.64 121,032.29 1,67l.24 122,703.53 In her affidavit Mrs Hansen said that these handwritten accounts were prepared with a view to recording what amounts had been contributed to the purchase price of the cattle station and by whom. She said they were not meant to reflect the liabilities of the company. One reason for keeping these accounts was to keep a record of moneys owing by Mr Kelly to the plaintiffs. There are a number of unanswered questions inherent in what she says. Why were the documents headed in the name of a company? Why did they include interest calculations? Why were they totalled monthly? · , o o o -- 5 of 9 -- c ' 15 16 17 5 Of the change in the accounts prepared by the company's accountants, Mrs Hansen said that the change occurred after they were advised of the true effect of the documents she had prepared and previously given them. On her account, the balance sheets for the years 1990-1995 incorrectly reflected the personal arrangement between the Kellys and the plaintiffs. This change was corrected in the balance sheet for the year ended 30 June 1996. This is also difficult to accept. If the accountants had previously received her handwritten documents, why had they not dealt with interest in the preparation of the balance sheets and the statements of profit and loss? Mrs Cant's evidence is not without difficulties also. In the particulars of claim which appear on the specially endorsed writ there is no mention of the initial arrangement or of any change in February 1991. In para. 10 of her affidavit she spoke of an acknowledgement "between ourselves and the venturers". She had previously defined the venturers as Mr and Mrs Kelly and Mr and Mrs Hansen. The company does not seem to have been a party to the change, ifany, which was effected in February 1991. Had there been a novation, the consent of the company would obviously have been necessary. Although Mrs Cant has sworn that the $80,000 was "acknowledged" as a loan from the plaintiffs to the defendant, the principles of acknowledgement (applicable where a creditor asks his debtor to pay a third party and the debtor agrees to do so and notifies the third party of the agreement) do not apply in the circumstances. (See Treitel The Law o/Contract 7th ed. p.499; Rothwells Limited v Nommack (No. 100) Pty Ltd [1990] 2 Qd R 85.) The evidence of what happened in February 1991 is unsatisfactory. Exhibited to Mrs Cant's affidavit are some handwritten minutes of a meeting on 11 March 1991 attended by Mr and Mrs Hansen and Mrs Kelly. The minutes were apparently recorded by Mrs Hansen and they bear the signatures of the three persons present. They record (inter alia):- "Aina [Mrs Kelly] directed the purchase by Mark and Sonia [Cant] of 1/5 share of Rob and Aina [Kelly)'s share to be converted to a loan to the company -- 6 of 9 -- 18 19 20 6 from the beginning." (On the assumption that the Kellys and the Hansens were equal partners in the business, one- fifth of the Kelly's share would be equivalent to one-tenth interest in the whole business.) However, in her affidavit Mrs Hansen said that during the course of the discussion Mrs Kelly said words to the effect of:- "Sonia and Mark have asked Robert and I whether the money they have lent to us can be converted to a loan by them to the company rather than to us." She went on to say that she and her husband did not agree to the proposal and the discussion finished on the basis that the matter might be raised again when Mr Kelly was also present. In December 1996 the plaintiffs caused a statutory demand under the Corporations Law to be served on the defendant company, claiming the sum of $263,089.45 by way of principal and interest. There were proceedings in the Federal Court in Victoria to set aside the statutory demand. In the course of those proceedings Mrs Cant swore a number of affidavits. In the first · , o o of these she said that she and her husband had invested $100,000 in the company on 31 0 January 1990. Initially it had been intended that they would acquire an interest in the company, but on 11 March 1991 it had been agreed by the directors of the company that the 0 investment be converted to a loan to the company from the time it was made. Then in a later affidavit she said that the investment had comprised two separate elements although the payments for both had been made at the same time, on 1 February 1990. $80,000 was made as the purchase price of a one-tenth interest in the cattle station and the balance of $20,000 was lent to assist in the payment of costs associated with the settlement of the purchase. She exhibited a number of Mrs Hansen's handwritten accounting records noting that the statement for February 1991 recorded the conversion to a loan of the amount of $80,000 and interest accrued thereon (then totalling $96,006.64) together with the $20,000 loan and interest accrued thereon (then totalling $25,025.65). In a third affidavit she said that it was agreed that -- 7 of 9 -- 7 the interest rate should be 2% above the current Elders Finance lending rate, which on 1 February 1990 was 18%. She then set out a schedule showing interest rate movements up to December 1996. 21 In the proceedings to set aside the statutory demand the female plaintiff conceded that there was a dispute as to $80,000. Further, she conceded that there was a dispute as to whether compound interest rather than simple interest was payable. For the purposes of those proceedings and the recovery of the $20,000 plus interest, she did not pursue the claim for compound interest. 22 In the present application Mrs Cant has referred to the concession that she made in the (i Federal Court proceedings. She has deposed as follows: " / ( ) \" / i, '"', 23 "18. As respondents, we conceded a dispute raised by the applicant company in respect of the debt as to $80,000.00 and proceeded only in respect of the $20,000.00 (being the money which had been paid by us to the company's then solicitors). 19. The Court held that there was a valid debt owing in that respect in the sum of $39,598.20 and in particular, held that the claim for interest 20. 21. (calculated at 2% above the Elders' rate) was properly claimed. That sum was paid by the defendant to us on 1st August 1997. The dispute as to the $80,000.00 loan centred on the company's claim that it had been loaned not to the company, but to Mr and Mrs Kelly, and that it formed part oftheir contribution to the company. That notwithstanding, we now pursue that sum and interest thereon." She went on to exhibit interest calculations, the financial statements prepared by Mrs Hansen to which I have previously referred and the minutes of the meeting of 11 March 1991 to which I have previously referred. On this application I cannot resolve the issue as to which is the correct set of accounts. Those prepared by the accountants for the years 30 June 1990 - 30 June 1995 support the argument that the moneys were originally lent by the plaintiffs to the company, but the change in the following year is to the contrary. On the other hand the accounts prepared by Mrs -- 8 of 9 -- 24 25 26 8 Hansen support the argument that it was from February 1991 that the moneys were treated as owing by the company to the plaintiffs. However, the legal efficacy of the change as from February 1991 has not been made out. Mrs Cant has not explained adequately the inconsistency between the concessions she made in the Federal Court and the stance she now adopts. In the circumstances there are substantial issues of fact which would have to be resolved in favour of the plaintiffs before judgment could be entered. Accordingly the present application must be dismissed. Before leaving the application for judgment I mention one argument put forward by o the defendant: that the moneys were not payable because there had not been a "disposition" 0 of the property. Were it necessary to decide this issue, I would be prepared to accept that a compulsory acquisition by the Northern Territory Government was a disposition in the circumstances. I will hear counsel for the parties on costs and directions for the further conduct of the litigation. o -- 9 of 9 --