Money lent to son by parents gives rise to a legal relationship … Court orders nearly $300,000 be returned to parents who kept forking out to their offspring … No need for ledgers … Peta Leigh on the case 

“Dad, I really need a loan.” 

“Okay, Mum and I can loan you the money, but we need this to be repaid. When do you need the money by?” 

“I need the money as soon as possible. I will definitely repay the monies back and even more, I will look after you in your old age.” 

How many times have we heard that? 

The Queensland Court of Appeal heard it in a case that raised the basic question about an intention to create legal relations.

Barry Claude Berghan and his wife Lorraine Allison Berghan sued their son, also Barry Berghan, 45, for repayment of significant loans they had made to assist his ailing small business. 

The payments began with a bank transfer of $98,000 to the son’s business, Centrgroup Pty Ltd, trading as Make Communications, in 2009.  

Following the initial transfer, the parents made 12 further advances amounting to a total of $286,471.09 in payments between 2009 and 2015. 

This included a period where Barry Berghan snr loaned Barry jnr a credit card linked to his own bank account. It is alleged that on each occasion, a similar understanding was mutually expressed that the money would be repaid.  

In January 2015, Berghan snr requested repayment from his son, telling him:

“We have nothing to back us now in life for our later years for all the years we have worked. So giving all that we have had has been very unwise.”

At the first instance, William Everson DCJ accepted the parents’ evidence that, “it was the intention of the parties that the monies advanced by them to the defendant were to be repaid by him”. 

However, he found that there was no obligation on the son to repay the loans because, in the circumstances of the familial relationship, there had been no intention to create legal relations. 

Everson emphasised the evidence that the parents had not made ledgers in respect of the payments, and they had not made demands for repayment until 2015. 

In support of this conclusion, HH further suggested that the charitable intentions of the parents in making the payments were especially understandable as the couple’s daughter also worked for the small business, and so in keeping Make Communications afloat the livelihood of two of their children was secured. 

On appeal Sofronoff P, Philippides JA and Boddice J fundamentally rejected this application of the law to the facts.  

Their joint judgment said:

“The issue was whether or not the circumstances known to both parties at the time of each transaction demonstrated objectively, that the payments had been made by way of loan. It is impossible to see how that was not so when, as we have said, even the respondent had admitted that they were loans at a time before the monies had been formally demanded from him.”

It was an error of the DCJ to conclude that the absence of a ledger was a sound basis upon which to conclude that the payments were gifts. 

It was also a legal error to rely upon the fact that the appellants made no demand until 2015. 

The respondent made submissions to the effect that evidence of post-agreement acts may be used to illuminate the nature of the agreement. Not only was the legal basis of these submissions not accepted, the court found that no facts were identified to suggest that the circumstances of the demand for repayment were inconsistent with an original intention to create legal relations. 

In essence, the trial judge found that the payments were charitable gifts on no basis other than the familial relationships. 

The appeal judges regarded the familial relationship as being the foundation of those transactions, considering how particular actions, such as verbal agreements and the level of trust placed in the son, spoke to the intention to create legal relations in that particular context. The Court of Appeal characterised this by stating: 

“The fact that no ledgers were kept by the appellants was hardly a material fact. The request had been made orally and had been acted upon almost immediately by bank transfer. It could hardly have been in the mind of the respondent’s parents that their own son would deny in his pleading that some of the payments had ever been made (and would one day compel them to prove formally in court the making of the payments). 

It could hardly have been in their mind that they would need the assistance of the court to recover the money that their son had promised to repay and that he had several times admitted had been lent to him, and that, for such a purpose, they should keep a ledger.”

While filial relations often cover a multitude sins, in this context the law intervened on behalf of the Bank of Mum & Dad.