It is commonplace in family law property settlement proceedings for one party to argue that a sum of money advanced to one spouse or the couple by a family member, or another related person, was a loan. In many cases, the other party will counter-argue that, for example, the sum of money was intended to be a gift and not repayable.  The Full Family Court in Vadisanis and Vadisanis and Anor [2014] FamCAFC97 recently considered loans between family members.   In this case, the husband’s mother (the intervener) intervened in the family law proceedings to seek declarations that the husband and wife were indebted to her in the sum of approximately $330,000, leaving a balance of $420,000 to be divided between the parties. 

In this Alert, Partner Freda Wigan and Associate Helen Davison examine an interesting issue arising from the case, provide some practical tips relating to documenting loans in family law matters, and discuss whether loans can be excluded on the basis that they are outside the limitation period.

Limitation period

Each State in Australia has legislation in place which imposes strict time limits (known as limitation periods) within which civil actions must be commenced in court.  If a limitation period expires, it may be difficult, or even impossible, to commence legal proceedings. In every State and Territory in Australia, a person or party has six years from the date on which a cause of action arose to commence court proceedings over a breach of contract; with the exception of the Northern Territory, where the period is three years.  This limitation period can be relevant where claims are being made by a related party for the repayment of asserted loans.

In Vadisanis and Vadisanis, the wife argued that many of the loans alleged by the intervener were unenforceable or statute barred, because six years had expired from the date of the loan.    The loan agreement of one of the loans stated the sum was payable upon demand, while another loan agreement stated that the loan was payable upon “the expiration of three months notice”.  Referring to commercial cases, the Full Court held that there is a difference in the treatment of loans depending upon whether they are repayable on demand or upon an event, for example, “repayable two days after a demand”.  The Full Court restated that where a contract is simply payable on demand the general rule is that the cause of action, or the limitation period, begins from the date of the contract, meaning the borrower is overdue every day of the loan. 

The Full Court found that the loan from the intervener to her son payable upon demand was unenforceable on the basis that six years had passed before the intervener made a demand for the sum to be repaid.  As for the loan payable upon “the expiration of three months notice”, the Full Court held that the limitation period commenced upon the expiration of three month’s notice, and therefore was not statute barred as six years had not expired from the date of the intervener’s demand. 

Practical tips

If you are considering borrowing or lending money and the intention is that the advanced funds are to be repaid, then you should seek advice from a commercial lawyer and have a loan agreement properly drawn to reflect the intention of the parties at the time of the advance. In cases involving disputed loans, generally the Court in family law matters will view loans between related parties suspiciously with all evidence being examined, including the terms of any signed loan agreement, security, and evidence of repayments.  The take away point from this case is to minimise the risk of the loan becoming statute barred after six years.  Your loan agreement should specify a date or period when the loan is due, or alternatively, make it repayable upon an event, such as repayable one month after a demand.