In a recent decision, the NSW Supreme Court has provided a stark reminder of the difficulties in proving an oral variation to a contract, particularly when the other party is deceased and cannot speak for themselves.
The case involved a claim by the executors of the estate of the late Mr David Daley to recover $3.7 million in unpaid loans made to his long-time friend and former business partner, Mr Geoffrey O’Connell. While Mr O’Connell did not dispute receiving the money, he argued that he should not have to repay a cent. His defence? An alleged conversation “over lunch” in 2019 where Mr Daley, out of a debt of gratitude, told him, “You don't have to pay the loans back”.
The Court was not convinced, entering judgment for the estate in the amount of $4,214,185.63 (including interest).
The Core Dispute: A Lunch, A Loan, and A Lifetime of Interest
Mr Daley, a retired chartered accountant, loaned Mr O’Connell five separate sums between 2013 and 2018, totalling $3.7 million. Interest was paid regularly, but the principal was never repaid.
Mr O’Connell’s case rested entirely on a conversation he claimed occurred in September 2019 at the Harbourfront Restaurant in Wollongong. He alleged Mr Daley said he didn’t want the money back because Mr O’Connell had “saved [him] from ruin” many years earlier in a business venture. According to Mr O’Connell, the new agreement was: he would continue paying interest until Mr Daley died, and then the debt would be considered fully repaid.
Unfortunately for Mr O’Connell, Mr Daley passed away in late 2023, leaving his daughters (the executors) to pursue the claim. This triggered a crucial legal principle: claims made against a deceased estate must be scrutinised with great care.
Why the Court Rejected the "Variation"
Justice Chen delivered a firm judgment, finding that the alleged 2019 conversation never occurred. Several key factors undermined Mr O’Connell’s case:
1. Conduct Inconsistent with the Claimed Agreement
The Demand Letter: In October 2022, Mr Daley’s son-in-law (an accountant) wrote to Mr O’Connell asking for his “plans to repay” the loans. Mr O’Connell’s own accountant replied with a detailed schedule confirming the debts were still owed and promising repayment from property sales in 2023. The Court found this email was sent on Mr O’Connell’s instructions, directly contradicting the idea the debt was forgiven.
Continuing Interest Payments After Death: The most damaging evidence was that Mr O’Connell continued to pay interest into Mr Daley’s bank account for four months after Mr Daley’s death. When asked why, he claimed he did it “out of respect” and because it would have been “rude” to stop. The Court rejected this as “unconvincing, improbable and self-serving,” noting it was completely inconsistent with an agreement that interest ceased upon death.
No Contact After the Demand: Despite claiming to be “shocked” and “bewildered” by the 2022 demand letter, Mr O’Connell never once called, wrote to, or visited Mr Daley to ask why he was seeking repayment of a supposedly forgiven debt. The Court found this “inconceivable.”
2. Credibility Issues with the Defendant
Inconsistent Dates: In his filed defence documents, Mr O’Connell swore the lunch occurred in 2020. He later changed it to 2019 for his affidavit. The judge noted this error about a “highly significant event” raised questions about reliability.
Lack of Corroboration: The alleged “debt of gratitude” based on a past business fraud was uncorroborated by any financial records, which the judge noted was curious given both men were experienced businessmen.
Evasive Evidence: The judge found Mr O’Connell was deliberately evasive during cross-examination, at one point giving “plainly wrong” evidence about never having seen a key email until trial, when his own affidavit stated otherwise.
3. The Evidence of the Deceased’s State of Mind
The plaintiffs provided evidence that in early 2021, Mr Daley showed his daughter his handwritten loan records, confirmed the loans were outstanding, and said words to the effect of, “Leave the loan for now… the interest rate is attractive… I trust that he will repay it.” The Court accepted this as accurate, finding it confirmed the continuity of the original loan agreements.
Key Legal Takeaway: The Problem of "Past Consideration"
Even if the Court had accepted the lunch conversation occurred, it noted a second, fatal legal problem: the alleged variation was not supported by valid consideration.
Under contract law, a promise to do something you are already legally obligated to do is not good consideration. Mr O’Connell’s “new” promise was to keep paying interest until Mr Daley died. However, under the original loans, he was already obligated to pay interest. Therefore, he provided nothing new in exchange for the $3.7 million being forgiven. The variation would have failed on this basis as well.
Lessons for Clients and Practitioners
This case offers several practical lessons:
Get it in writing: An oral agreement to vary a significant contract (especially one forgiving millions of dollars) is extraordinarily difficult to prove. A simple email or signed note confirming the change can avoid years of litigation.
Conduct is king: Courts will always look at how parties acted after an alleged agreement. If your conduct is inconsistent with your stated version of events (e.g., continuing to pay interest after the trigger event), your credibility will be destroyed.
Beware the deceased estate rule: Claims involving conversations with a person who has since died face a high bar. The Court will scrutinise the surviving party’s evidence with intense care, looking for independent corroboration.
Consideration still matters: Even between friends, a binding variation to a contract requires both parties to give something of value (or suffer a detriment). A promise to do what you are already bound to do is not enough.
The judgment serves as a powerful cautionary tale: even a long-standing friendship, a heartfelt conversation over lunch, and a claimed debt of gratitude are no substitute for the clarity and enforceability of a written contract.
The estate of David Daley was awarded judgment for $4,214,185.63, plus costs.
This blog post is for general informational purposes only and does not constitute legal advice. You should consult with one of our qualified solicitors for advice tailored to your specific situation. Contact us today for an appointment.
