Lessons from the Disputes Tribunal: The downsides of trusting friends with your money

Wednesday, 6 November 2024

The Disputes Tribunal hears many small money claims when friends fall out over money.

ANALYSIS: “Betrayal always comes from someone you thought was a friend.”

There’s a million quotes to be found on social media, nuggets of wisdom that capture pithy partial truths. But cases that have come before the Disputes Tribunal show friends, and lovers, aren’t necessary to be trusted when it comes to money and property dealings.

Then tribunal is a low-cost legal forum in which people can seek to settle small money claims up to $30,000 quickly, and cheaply.

Cases from this year show how misplaced trust, and failure to document money dealings between friends and lovers can lead to hard-to-resolve money claims.

Love lost between boy racers

The young boy racer heading overseas for a holiday thought it would be kind to lend his like-minded friend his prized souped up, alloy mag-wheeled ride.

He came back to find the car damaged by his learner licence-holding mate, who had driven it like only a boy-racer would.

Hundreds of boy racers gathered in the Horowhenua town on Sunday evening, turning the main street into a burnout pad. Thirty police officers were called to the scene, where they made a number of arrests and impounded vehicles.

Friends told him the borrower had driven the car “recklessly, and at speed, while intoxicated”, but had also allowed others to drive the car.

Not all of the damage came from his mate’s driving.

The friend’s father had found the car unlocked one day, and, concerned his son was driving the car illegally, disabled it by removing a relay from under the bonnet.

The friend had the car towed to the owner’s house, but it was damaged in the process.

Angry at the abuse of his beloved motor, the owner went to the Disputes Tribunal to seek $11,099 from his friend and his friend’s father, who he blamed for the damage, to cover the costs of repairs, and $2141 for loss of wages because he could not get to work without the car.

The onus of proof was on the car-owner to prove “on the balance of probabilities” that the car was damaged in his friend’s possession.

The owner of the car had been caught on video travelling at 180km/h in it.

The tribunal found there was proof for some of the damage, and ordered the friend to pay $2120.25.

However, tribunal referee JF Tunnicliffe said the friend’s father was not at fault.

The friend was the “bailee” of the car- the term for a person who has the care of another person’s property- and the bailee has a duty of care to look after it.

And, Tunnicliffe found the car-owner had failed to prove some of the damage happened while his car was in the car of his friend.

“There is video evidence of DM driving the vehicle at speeds up to and over 180km/h, and sliding the car on gravel, which give rise to the reasonable possibility that [the owner] may have caused damage himself,” Tunnicliffe said.

Out of pocket after short-term relationship

The tribunal can hear money claims after short-term relationships of less than three years.

When longer-term relationships break up, there are clear laws governing who gets what. When short-term relationships end in money disputes, the Disputes Tribunal can help resolve them.

In one claim, a man moved in with his girlfriend, and ended up paying $22,564 for a ventilation and heating system, and for a survey, council fees, and a marketing report to explore the potential development options to increase the profitability of the property, which was owned by a family trust on which he was not a beneficiary.

When the relationship ended, he wanted paying back, and claimed there was a verbal agreement that he was to be paid back after the sale of the property, which was marketed, but did not sell.

However, no written contract was shown to the tribunal, although the man claimed one existed, but was never signed, and it was stored on a computer he no longer had access to.

Tribunal referee GM Taylor said a contract need not be in writing to be enforceable, but it must satisfy certain criteria. These include agreement by the parties to be bound by it, “consideration”, certainty, and an intention to create legal relations.

His short-term ex-girlfriend said none of the payments he made were loans.

The referee did not find that a legally binding contract was entered into, or that there was any intention at the time to create legal relations.

Instead, he found that the man “was investing in their relationship and future, rather than a contractual arrangement requiring repayment”.

The couple’s plan had been to buy a home together, when the house they were living in was sold, and that the money he spent was more akin to an investment in his future hopes of housing.

Nor was this a case of “unjust enrichment” under the law of quasi-contract, under which a party who has been unjustly enriched, for example as a result of a mistake, can be ordered to pay the money back.

There was no error, and the ventilation and heating system and payments were made in part for his own comfort and future hopes.

Many people lend friends money. It is important to record the loans on paper, so that everyone understands they will be repaid, and by when.

Not so mutual friend support

Two friends supported each other financially by turns for several years. One lent the other $10,000 to help him buy a house.

He said his friend only paid him back $1400, and asked he tribunal to make him repay the rest.

The borrower made various claims, including that he had made a lot of payments to his friend, and the debt should be offset by those payments.

There was no written contract, but tribunal referee GM Taylor decided a contract between the pair did exist, partly because the lender had himself borrowed money to help out his friend, and that the people he borrowed money from needed paying back.

“The remedy for breach of contract is to place the affected party into the position he or she would be in had the contract been performed,” the referee said.

Money changed hands during romance

Beware dates who start asking for loans.

A man and a woman met on a dating site. He had money troubles, and asked her for money to assist him with rent, food, medication and to buy a car.

The woman lent him the money, which would be repaid “after he had completed a fitness competition”, the tribunal heard.

The relationship broke down, and he refused to repay the money.

He claimed the money was either a gift, compensation for him providing a fitness plan to the woman, or his share of money assisting her when she worked delivering food.

She proved to the tribunal she had made payments to him of $10,470, and bank statements showed the purpose of each payment, however there were no texts, emails or other documents that confirmed whether or not the money was given as a gift or a loan.

The woman had taken out a loan to help the man.

Tribunal referee DTR Edwards decided: “In view of the short time [the woman] and [the man] had been acquaintances, and the fact they were friends and not romantically involved, combined with [her] own financial situation and the nature of the expenses she was covering for [him], I find it unlikely the money was obtained for and given to [him]as a gift.

The referee ordered the man to repay the woman the entire $10,470.

However, the woman claimed the expensive, short-lived friendship, had cost her $16,985 in takeaways, but the referee found no compelling reason to see that expense as being made as a loan to the man.