CENTURIAN CONSTRUCTIONS PTY LTD v BECA DEVELOPMENTS PTY LTD

CENTURIAN CONSTRUCTIONS PTY LTD v BECA DEVELOPMENTS PTY LTD - [1999] NSWCA 457 - NSWCA 1999 case summary — Zoe

[14]

a home unit in Anzac Parade, Maroubra (the Maroubra property) owned by Anthony Developments Pty Ltd (Anthony). 12 On 5 July 1991 the whole of the net proceeds of the sale of the Hurstville property, namely $243,611, were paid to Australian Guarantee Corporation (AGC) in discharge of part of Beca's indebtedness to AGC. On 2 October 1991 the Coffs Harbour property was sold. The net proceeds of $243,255.09 were similarly paid to AGC in discharge of Beca's indebtedness. 13 On 20 July 1993 the Maroubra property was sold for $168,853. Of this $124,013 was paid to FPM Finance Limited (FPM), a creditor of Beca. Mr and Mrs Pselletes were the guarantors of Beca's liability to FPM. 14 Mr and Mrs Pselletes also claimed to set-off rents paid into Beca's account, namely $103,090 from the Coffs Harbour property and $38,751 from the Hurstville property. 15 Finally, Mr and Mrs Pselletes claimed wages each of $25,000 a year for 10 years, a total of $500,000. 16 Young J found that the amount of $486,866.09, being the sum of the net sale proceeds of the Coffs Harbour and the Hurstville properties, should have been credited against the liability shown in the directors' loan account. His Honour held that the liquidator was entitled to be paid the sum sought in the notice of motion of $621,820.57 less $486,866.09, that is, $134,954.48, and gave judgment against each of Mr and Mrs Pselletes for this sum. In so reducing the amount to which the liquidator was entitled Young J took no account of the fact that Mrs Pselletes had apparently no interest in either the Coffs Harbour or Hurstville properties. His Honour seems to have treated Mr Pselletes' interest in those properties as also the interest of Mrs Pselletes. In the circumstances of the way in which Beca made its claim against Mr and Mrs Pselletes this may have been justifiable. But more importantly the liquidator has not challenged this approach. Accordingly, I will proceed on the same basis. 17 His Honour said that the evidence was insufficient to find in favour of Mr and Mrs Pselletes on the rent payments and allowed no deduction for wages. His Honour observed that Mr and Mrs Pselletes had acknowledged that there was an agreement that Beca would manage the properties in return for one-third of the rent so that one-third of the rent could not be claimed back. So far as the proceeds of the Maroubra property were concerned, Young J said that if there was a claim it should have been one by Anthony. 18 On 15 June 1998 the Court granted leave to appeal out of time. Mr and Mrs Pselletes' appeal challenged his Honour's disallowance of the $124,013 and the amounts of the rental income as set-offs. 19 Beca cross-appealed on the ground that because Mr Pselletes' mother had a joint interest in the Hurstville property Young J should have credited only half of the net proceeds of the property or $121,805 against the liability shown in the directors' loan account.

[35]

40 On the basis that in the present case special grounds had to be shown the conditions for admission of the further evidence have been met. Mr Pselletes was not cross-examined in a way which undermined its credibility. The minutes of the meeting appear to be signed by the chairman, Constance Pselletes. I am satisfied on the balance of probabilities that the proceeds of the sale of Anthony's property to the extent of the $124,013 was lent by Anthony to Mr and Mrs Pselletes to be used by them to pay part of Beca's debt to FPM. The question is whether this is a set-off against the claims by Beca against Mr and Mrs Pselletes, Beca by then having been wound up. 41 For reasons already given this depends upon the meaning and application of s86 of the Bankruptcy Act. It was not and could not be denied that Beca's borrowing from FPM and Mr and Mrs Pselletes securing it by guarantee meant that relevantly there were "mutual credits, mutual debts or other mutual dealings" between the parties. The problem, if there be one, is that Beca's liability to Mr and Mrs Pselletes remained contingent until they paid the $124,013 as guarantors to FPM and that occurred after Beca was wound up. On this account, at the date of winding up, Beca was under no actual or fixed liability to Mr and Mrs Pselletes. 42 The relevant time for ascertaining whether there are mutual debts, mutual credits or other mutual dealings between the debtor and other persons for the purposes of s86 (1) as it applies under the Corporations Law is the date of liquidation of the company; see Day & Dent Constructions Pty Limited v North Australian Properties Pty Limited (1982) 150 CLR 85 at 98 and the cases there referred to. That date is the date the winding up order is made; see 99. The following passage in the judgment of Mason J, with which Stephen and Aickin JJ agreed, leads to the conclusion that once Mr and Mrs Pselletes are found to have discharged part of Beca's debt to FPM as guarantors they are entitled to set-off the amount paid against the claim by Beca against them. Mason J said at 109: "The important factor is that, by virtue of a guarantee given before bankruptcy or liquidation as the case may be, the surety has undertaken an obligation which on payment to the principal creditor will result in a debt owing to him (the surety) by the principal debtor. There is no reason why the liability thus undertaken, once payment is made, should not ground the right to set-off the debt created by the payment. In this case payment had been made by the respondent to Esanda at the time of the claim to the set-off. At that time there was clearly a debt 'due' from the appellant to the respondent. And it is at the time of the claim to the set-off, and no other, that the respondent needed to establish the existence of the debt. The respondent had also to establish the existence of mutual dealings at the date of liquidation. The existence of mutual dealings at that date was satisfied by the giving of the guarantee in the circumstances already outlined. The giving of the guarantee resulted in a debt which came into existence by the time when the account was taken and this was enough to ground a set-off."

[36]

In my opinion, Mr and Mrs Pselletes were entitled to set-off the amount of $124,013 against Beca's claim. 43 In para 4 of his affidavit, Mr Qureshi said that the Hurstville and Coffs Harbour properties were owned for approximately 20 years between 1971 and 1991. The total amount of rent received from the properties during this period was $461,301. The rental income from the properties was paid into Beca's bank accounts and treated as a loan. Mr Qureshi prepared a table showing how this total was arrived at. 44 Mr Pselletes now claims to set-off the estimated rents paid in what appear to be the financial years 1980 to 1986 both inclusive ending on 30 June in each of those years. In the case of the Coffs Harbour property these total $113,847 and in the case of the Hurstville property, $42,819. These totals exceed the amounts claimed before Young J. 45 Mr Pselletes' argument starts with a reference to the journal entries of Beca for the year ended 30 June 1987 which include an amount described as rent received $62,237.05 of which $16,270 is credited to the directors' advance account (York Street). This, it is said, could only be the rents for the Coffs Harbour property. By contrast it is pointed out that in the journal in previous years, and, in particular in the years 1980 to 1986 both inclusive, there has been no such credit to the directors' advance account and these rents were apparently simply treated as cash receipts. Thus it is said that, because of a bookkeeping oversight before Mr Lowe took over the bookkeeping, rents received by Beca for the Coffs Harbour and Hurstville properties were not credited to the directors' advance account. Para 4 of Mr Qureshi's affidavit was objected to but admitted. 46 Young J said: "The evidence is extremely weak on this part of the case. The onus is on the Pselletes to show that it is more likely than not that the rents from these properties flowed through to Beca and were not adjusted in the Directors' Loan Account. The evidence is insufficient for me to find in their favour."

[37]

47 Mr Pselletes and his mother jointly owned the Hurstville property. The journal entries of Beca for the year ended 30 June 1987 include an amount as rent received of $12,890 credited to G and C Pselletes "(Gloucester)". Gloucester Road was the Hurstville property. In his affidavit of 14 April 1997 Mr Lowe said that using information provided by "the client", presumably Beca, it was his invariable practice to enter the rental income from the Coffs Harbour and Hurstville properties "into the Beca ledger and credit them to the directors' loan accounts." Mr Lowe's oral evidence threw no greater light on what had happened. 48 In evidence were partnership income tax returns for Mr Pselletes and his mother beginning with the year ended 30 June 1988. From those it appears that the income of the partnership which included the rent from the Hurstville property was divided equally between Mr Pselletes and his mother. The income tax returns of Mrs Pselletes in evidence which also begin with the year ended 30 June 1988 do not disclose any interest in the rent from the Coffs Harbour or Hurstville properties. It follows that at most the rent from the Coffs Harbour property and half the rent from the Hurstville property could be treated as advances by Mr Pselletes to Beca. 49 There was some evidence to support the conclusion that the rents from the Coffs Harbour and Hurstville properties had been paid to Beca during the financial years 1980 to 1986 both inclusive and that they should have been treated as advances by Mr Pselletes and, in the case of the Hurstville property, by Mr Pselletes and his mother and recorded in the journals accordingly. What Mr Pselletes and Mr Qureshi say is not challenged and gains some support from a comparison of the earlier and later journal entries. In my opinion, there is sufficient to support the off-set of the rents of the Coffs Harbour property and half the rents of the Hurstville property to the account of Mr Pselletes. 50 In evidence was an agreement made on the 4 July 1990 that Beca manage the Coffs Harbour property for a fee of one third of the gross rentals. There was no evidence of any such agreement for the Coffs Harbour or Hurstville properties during the period 1980 to 1986.

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Judgment (43 paragraphs)

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Cases Cited (7)

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