Was the personal loan enforceable - even though not signed?

In personal and business relationships alike, large sums of money often change hands informally. When disputes arise, courts are frequently called upon to determine the true nature of such transactions. The recent decision in Kempe v Grine [2025] NSWDC 227 shines a spotlight on the legal complexities and practical risks that arise when the distinction between a gift and a loan is blurred.

Introduction

The central issue in Kempe v Grine was whether a payment of $300,000 from the plaintiff, Ms Kempe, to the defendant, Ms Grine, was intended as a loan repayable with interest or a gift with no repayment obligations. The case underscores the significance of written agreements, consistent conduct, and documentary evidence in characterising financial arrangements. It also illustrates how courts scrutinise post-contractual conduct and the credibility of witnesses when untangling the facts in high-stakes financial disputes.

Factual Background

In December 2018, Ms Kempe advanced $300,000 to Ms Grine. At the time:

• Ms Kempe had just finalised a property settlement from a difficult divorce.

• The funds represented the entirety of her property settlement proceeds.

• The defendant was facing financial pressures related to her restaurant business, “Happi Chicken”.

• A draft loan agreement was prepared by the defendant’s accountant, Mr Cyril Quek, which the plaintiff claimed both parties signed.

The plaintiff asserted that the money was lent on agreed terms, including:

• Interest of 20% per annum payable monthly.

• Security in the form of 100% shareholding in the defendant’s business.

• An option to convert the loan into a 35% ownership stake.

The defendant, however, denied that any contract had been signed and claimed the funds were either a gift or the subject of an amended agreement reflecting a 5% interest rate.

Key Legal Issues

The Court was asked to determine:

1. Was there a valid and enforceable loan agreement?

2. Was the $300,000 a gift or a loan?

3. Were the terms of the loan agreement varied?

1. Was there a Valid Loan Agreement?

Judge Gibson DCJ found that a binding contract had been formed, even though the document before the Court was unsigned.

Key factors supporting this conclusion included:

• Text messages exchanged between the parties and Mr Quek confirming the drafting and delivery of a loan agreement.

• The plaintiff transferred the funds via bank cheque only after reviewing the agreement.

• The conduct of both parties following the transaction was consistent with the loan terms – notably, the payment of weekly instalments by the defendant equating to the agreed interest amount.

Her Honour noted:

“The pattern of repayment in the form of 15 cash payments... supports the content of clause 3 of the contract concerning the interest rate.”

This finding aligns with established contract principles that oral and conduct-based evidence may establish agreement even without signed documentation, particularly when parties proceed on the assumption that terms are binding: PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd [2007] VSCA 310.

2. Was It a Gift?

The defendant’s alternative claim was that the payment was a gift. However, the Court emphatically rejected this argument.

Judge Gibson found the gift theory “inherently implausible”, noting:

• The plaintiff’s funds represented her entire financial base.

• There was no close personal relationship warranting such a significant gift.

• The defendant requested a loan, initiated contract drafting, and accepted interest payments.

Her Honour wrote:

“The inherent implausibility in the plaintiff making a gift of what amounted to her entire worldly possessions... must also be taken into account.”

There was also no credible evidence to support the existence of a gift, nor any documented agreement that the sum was to be treated as one.

3. Were the Terms Varied?

The defendant further claimed that the contract had been varied, specifically that the interest rate had been reduced from 20% to 5% by agreement.

However, the Court rejected these claims on multiple grounds:

• The alleged variations were not supported by documentation.

• No evidence of consideration was provided to support the variation.

• The defendant’s accountant, Ms Linda Day, and her daughter provided conflicting and unreliable evidence, much of which was dismissed in its entirety.

The Court found that even if post-contractual discussions took place, they did not satisfy the legal threshold for variation:

“For a variation to be contractually binding, the variation must satisfy all the legal requirements to form a valid contract, including certainty of terms, proof of offer and acceptance and the provision of valuable consideration.”

Witness Credibility

The judgment provides a detailed assessment of witness reliability. Judge Gibson was especially critical of the defendant’s evidence and her witnesses, noting inconsistencies, rehearsed testimony, and implausible explanations.

In contrast, the plaintiff was found to be “frank and straightforward”, offering precise and pertinent responses and showing a willingness to adjust her claim downward to benefit the defendant.

This stark difference in credibility was pivotal to the Court’s acceptance of the plaintiff’s account over the defendant’s.

Key Takeaways for Individuals and Businesses

This case offers a cautionary tale with several important lessons:

1. Put it in Writing

Always document loan agreements – especially those involving friends or family – in a clear and enforceable format. While verbal or unsigned agreements can be enforceable, they require far more effort to prove in court.

2. Specify Loan vs Gift Clearly

Use explicit language to categorise the nature of the payment. If it’s a loan, outline terms including repayment deadlines, interest rates, and consequences of default.

3. Keep Copies of Agreements

Ensure all parties retain copies of the signed contract. In Kempe v Grine, the defendant’s failure to produce documentation significantly weakened her case.

4. Post-Contract Conduct Matters

How parties behave after funds are transferred – including repayment patterns – can influence a court’s assessment of whether a loan agreement exists.

5. Witnesses Must Be Credible

The decision shows how important it is for witnesses to give honest, consistent evidence. Courts will disregard testimony from those who are found to be untrustworthy or evasive.

Implications for Legal Advice

This case reiterates the need to:

• Formalise personal lending arrangements, even where there is perceived trust.

• Use interest rate clauses that reflect commercial reality and avoid tax complications.

• Obtain clear advice about contract formation and enforceability, particularly where informal transactions are concerned.

Judgment Summary

In the end, Judge Gibson DCJ ordered:

• Judgment for the plaintiff in the sum of $593,666.21.

• Costs to be paid by the defendant.

• Liberty to apply on interest and costs issues.

Her Honour did not award the full amount that could have been claimed (over $650,000), acknowledging that the plaintiff had generously adjusted her calculation in the defendant’s favour.

Final Thoughts

The Kempe v Grine decision serves as a pointed reminder that goodwill and trust are no substitute for clear legal agreements when it comes to financial transactions. As disputes over loans vs gifts continue to arise in both personal and business contexts, this case provides a practical benchmark for how such issues are likely to be resolved under NSW law.