Family loans – justice for elderly parents

Friday the 13th was not a bad omen for parents Mr and Mrs Berghan as it was the day the Queensland Court of Appeal delivered its reasons for reversing the District Court decision to deny them the right to be repaid money they had lent to their son.

When the District Court handed down its decision in March 2017, it was widely reported in the media and criticised by a number of prominent lawyers who practice in this area.

To recap the facts:

  • Mr and Mrs Berghan (aged 72 and 71 years respectively) sued their son (aged 45) for repayment of more than $286,000;
  • The Berghans had made 13 separate advances to their son (or his company) from about 2009;
  • In or about 2015, the Berghans sought repayment of the money from their son;
  • Despite being clearly sympathetic towards the Berghans, and accepting that the money had been paid on the condition that it would be repaid, the Judge found the son had no legal obligation to repay the money, stating:

“Even if, extraordinarily, the defendant used the same mantra of “I’ll pay you back in full and more and look after you in old age” practically every time the plaintiffs provided him with money, this is a general statement consistent with him being morally obliged to repay his parents rather than one which bears the indicia of entering into a binding loan agreement. In circumstances where no ledgers were kept and no demand was made until 2015, the transfers of money did not indicate an intention to create legal relations.”

The Court of Appeal had this to say about the decision of the District Court:

“Once his Honour had found that the money had been paid on the condition that it would be repaid, the result should have been judgment for the [Mr and Mrs Berghan]…

The fact that no ledgers were kept by [Mr and Mrs Berghan] was hardly a material fact…It was not put to [Mr and Mrs Berghan] that the reason [they] had not kept [a ledger] was that the payments were gifts…It is not possible, therefore, to use this as a basis upon which to conclude that the payments were gifts if it otherwise mattered…

Nor could the fact that [Mr and Mrs Berghan] made no demand until 2015 bear upon the issue in any way…there were no circumstances identified by his Honour which rendered any “delay” in making demand for repayment inconsistent with the existence of an intention to create legal relations.

Once one accepts that the money was paid upon the express condition that it should be repaid, as the Judge found, then the inescapable conclusion had to be that the resulting transaction was a contract of loan. In our respectful opinion his Honour’s conclusion that the parties had no intention to create legal relations was an error. The finding has to be set aside.”

While this is a wonderful outcome for Mr and Mrs Berghan, this case still serves as a warning for all parents that are considering loaning money to their children.

All loan agreements, whether between family members or otherwise, should be documented properly. That way, everyone is clear as to their obligations, and litigation such as this is avoided.

“The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.”
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