A recent Queensland Court case between elderly parents and their son has shed considerable light on what must be proved in order for moneys which are transferred to a family member to be recognised as a loan, rather than a gift.

The facts in the case of Bergham & Anor v Bergham were as follows:

  • throughout 2009, the son’s business was under significant financial stress;
  • after the son approached his parents, the father arranged for $98,000 to be transferred to the son;
  • the son continued to ask for further moneys and the father complied, arranging for further transfers to be made to the son;
  • in late 2012, the son asked to borrow his father’s credit card and incurred further expenditure of $13,471.09 on that card; and
  • when asked to repay the moneys, the son refused to do so, asserting the transfers were gifts.

The parents eventually sued their son in the District Court claiming that the $268,471.09 which had either been transferred to the son in cash or incurred as expenses on the father’s credit card was, in fact, a loan. The son defended these proceedings and initially won. The trial judge found that:

  • the parents had failed to prove there was an intention by parties to create a legally binding agreement for the loans;
  • there might have been a moral obligation to repay the loan, but this fell well short of a legal obligation to do so;
  • because the parents did not keep a ledger of the funds transferred to the son, this indicated that the parents did not intend to require the moneys to be repaid;
  • the fact that the parents’ daughter worked for the son’s company was also considered to be important because the security of the daughter’s employment could be seen as a strong motivation for the parents to consider the transfer of the funds to the son’s company as more charitable in nature;
  • the fact that the parents allowed the son to use their credit card when the son was injured and had very little money was more indicative of a charitable gesture than a legally binding business arrangement.

The parents lodged an appeal to the Queensland Court of Appeal which found in favour of the parents. The Court of Appeal made the following findings:

  • the fact that the parents did not keep a ledger of the funds transferred to the son should not count against the existence of a enforceable loan agreement between family members;
  • the lengthy period of time it took the parents to demand repayment of the money owed should not count against their assertion that a breach of the loan arrangements had taken place; and
  • the motive the parents had in transferring the money to the son, be it “charitable” or otherwise, was not relevant. Rather, of relevance was what the parents’ objective intentions were when making the transactions.This case could have very important ramifications for families involved in the agricultural sector, particularly where farming and grazing lands are transferred from one generation to the next on the basis of an informal or undocumented financial arrangement that the parties agree are to apply in the years to come.

The Court ordered the son to pay his parents $286,471 plus interest.

This case could have very important ramifications for families involved in the agricultural sector, particularly where farming and grazing lands are transferred from one generation to the next on the basis of an informal or undocumented financial arrangement that the parties agree is to apply in the years to come.

This information is intended to provide a general summary only and should not be relied on as a substitute for legal advice.

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