Following last week’s post, the case of Berghan & Anor v Berghan [2017] QCA 236 is a stark reminder. As usual, if you would like a copy of the decision please contact me.
Broadly, the factual matrix was as follows:
1) A son had borrowed (either directly or via related entities) a six-digit sum from his parents over an extended period.
2) The total amount lent was by way of instalments on a number of separate occasions.
3) On every occasion, there was a confirmation from the parents that they intended the amount to be a loan.
4) In saying this however, no formal agreement was ever entered into.
5) There was also an extended delay between the point in time at which the loans were made and when the parents ultimately sought recovery of the loans.
In the initial court decision, it was held that despite the reference to the loans, the conduct of the parents was more analogous to a gift, and on this basis, there was no obligation at law (ignoring any moral argument) that the son had to repay the amounts.
While on appeal, the parents were successful in having the court confirm that the amounts were actually loans repayable on demand, the fact that there was a protracted legal case to achieve this outcome is a stark reminder to ensure that comprehensive legal agreements are implemented.
The court focused on the factual matrix to determine whether the transactions had objectively demonstrated that the payments were made by way of an oral loan agreement and were not gifts. Once it was determined that the advances were loans, it was confirmed that at law, in the absence of anything to the contrary, such loans are deeded to be at call and repayable on demand.
Finally, independent legal advice should be obtained by each party to ensure that the prospects of, particularly the borrower, arguing that the arrangements were in fact a gift is unsustainable.
** for the trainspotters the title of the post today is riffed from 1984 and Depeche Mode’s ‘People are People’