Beca Developments Pty Ltd v Centurian Constructions Pty Ltd Matter No 1600/96 [1997] NSWSC 320 (21 August 1997)

Beca Developments Pty Ltd v Centurian Constructions Pty Ltd

1600/96

21 August 1997

Young J

The Supreme Court of New South Wales Equity Division

1600/96 - BECA DEVELOPMENTS PTY LTD V CENTURIAN CONSTRUCTIONS PTY LTD

JUDGMENT

HIS HONOUR: This is an application to wind up the defendant("Centurian") brought by the liquidator of the plaintiff ("Beca"). These proceedings were heard concurrently with 1513 of 1992, Re Beca Developments Pty Ltd, in which the liquidator of the plaintiff proceeded against Mr and Mrs Pselletes, who were at all material times the sole directors and shareholders of both the plaintiff and the defendant. I made various findings of credibility in that litigation which, by agreement, are to apply in this litigation.

The plaintiff says that the defendant owes it $534,945.00 in accordance with the books of the companies concerned. The defendant does not dispute this, but says that it has offsetting claims to the value of over a million dollars. Thus, it says that on accounts being adjusted, there are no moneys owing and it should not be wound up. However, if the issue as to the offsetting claims are decided against the defendant, then it is conceded that all necessary formalities have been established and that the defendant ought to be wound up.

Essentially, the plaintiff was a development company and the defendant a construction company and they worked in together. With common directors, and common shareholders, understandably they worked very closely together and some matters of accounting could get confused. At all material times, the directors employed a Mr Stavrou to do their accounting work for them and his employee, Mr Lowe, attended to the day to day bookwork. After these proceedings were instituted, the directors consulted a Mr Qureshi, an investigating accountant, to examine the books and records of the defendant. It is a result of Mr Qureshi's investigations that makes the defendant assert that it has a cross claim exceeding that of the plaintiff's.

In essence, the cross claim is made up as follows:-

1. Reimbursement for moneys lent by the cross claimant $152,000

2. The payment of profits made on a building contract at

10 Campbell Street, Hunters Hill 680,000

3. Reimbursement of proceeds of sale of assets, that is

partitions and furniture 282,390

4. Reimbursement of proceeds of sale of real estate owned

by Centurian and paid to Beca 164,404

As in the earlier case, the claims are made mainly as a result of reconstruction of the books by Mr Qureshi.

1. The first claim totalling $152,000 is for loans that have not been recorded from Centurian to Beca. This covers five items, viz (1) $40,000 as deposit from Skatebin Formwork on 21 April 1988; (2) $40,000 deposit from Masa Pty Ltd for hiring equipment from Centurian; (3) $35,000 deposit from Skatebin Formwork Pty Ltd on 18 September 1987; (4) $30,000 deposit by Skatebin Formwork Pty Ltd on 4 September 1990; and (5) $7,000 deposit by Masa Pty Ltd on 11 September 1990. Mr Wily, the liquidator, says that for none of these items has Centurian produced any documentary evidence in support of any entitlement of Centurian to the alleged deposits. Mr Wily can see where amounts such as these came into the cash books of Beca as receipts, but he cannot see where these were allocated. With respect, this is a very unhelpful comment.

If one takes the trouble to look at the ledger of Beca which is PX06, one can see that the accountant has taken a very unorthodox short cut. He has merely taken the total of the deposits from the cash book and posted them to the ledger Folio 28A, "No 2 Westpac Bank Liverpool #212899". He has then debited against that sum the total amount of the payments in the cash book. Thus there has been no posting to individual ledger accounts such as the Directors' Loan Account on page 15.

The uncontradicted evidence from Mr Pselletes, which is supported by the photostat deposit slips, shows that the moneys which were deposited in Beca's account were for work done by Centurian, and as there is no presumption that there was any gift, it would seem to follow as night follows day that the moneys were loan moneys. The cheques drawn on Beca's account would all appear to be for Beca's expenses, though there are some payments to doctors and pathology services which I have not traced through to see whether they were debited to Directors' Loan Accounts.

It follows that without other material from the liquidator, the only conclusion that one can draw is that there were moneys lent by Centurian to Beca which were used for Beca's ordinary expenses and not credited to the Centurian loan account.

A comment in the liquidator's affidavit to the effect that the books and records of Beca appear in his opinion to have been properly kept and as such these matters would have been brought to account in the relevant loan accounts of the person or entity entitled to be credited with the income is, with great respect of nil evidentiary value. The court would be far more assisted by having the liquidator or his staff actually point to the relevant entries in the books to save the Judge having to spend hours doing that sort of exercise when writing the judgment.

The five several items should be looked at in a little more detail. The $40,513.80 which the liquidator acknowledges was received by Beca on 21 April 1988 appears from the deposit slip to be a medical benefits refund of $513.80 and $40,000 from Skatebin Formwork which, on what evidence there is, was an amount due to Centurian. The $40,000 banked on 5 March 1988 from Masa Pty Ltd for hire charges again would appear to be a Centurian debt. The $35,000 on 18 September 1987 again came from Skatebin as did the $30,000 deposited on 4 September 1990. The $7,120 of 11 September 1990 came, as to $7,000, from Masa and $120 from State Rail. The first is obviously a payment paid to Centurian. There does not appear to be any claim in respect of the $120.

Accordingly, on the balance of probabilities there should be credited to Centurian $152,000 as loans.

2. The next offsetting claim is for $680,000 on a contract for building works in connection with building works at 10 Campbell Street, Hunters Hill and renovations of buildings owned by Beca situated in Coffs Harbour. The cost of the work in the contract of 3 July 1990 was $680,000. As to this claim, Mr Wily says that (a) in the building insurance policy the contract or final value of material damage covered in respect of the building contract was only $50,000 thus the contract sum of $680,000 "therefore appears to be incorrect, if not, excessive"; (b) approximately $1.25 million was paid out as sub-contract sums for the financial year ending June 1990 including $548,000 in respect of Hunters Hill; (c) Centurian submitted a proof of debt.

Going in reverse order, the proof of debt is for $680,000 so really cannot be a material factor in the present case. The $548,000 includes, when one looks at page 11 of the Beca journal, at least $97,000 paid to the Macquarie Bank. Again, the liquidator's comments are not particularly helpful and one has got to look at the actual books, the appropriate extracts of which are helpfully annexed to the liquidator's affidavit. However, the cash book for 1989-1990 is not part of the evidence. Further, all that folio 11 of the journal does is to refer to folios 10, 92, 109 and 134 of the ledger. Folio 134 refers to the cash book folios 8 and 9 which are not in evidence, but otherwise gives no details. Folio 92 deals with "advances" and "advances to sub-contractors" recorded on folios 7 and 9 of the cash book of about a million dollars, but there are no details of these so that I am just left completely in the dark.

The onus is on the cross claimant to satisfy me of the claim and the material before the court does not enable me to find that the $680,000 claimed by Centurian is still owing by Beca.

3. The next claim is for $282,390 as reimbursement of proceeds of sale of assets. As to this, the liquidator says that Beca entered into a hire purchase agreement with Duke Pacific Finance Limited ("Duke") in respect of chattels for $282,300. Secondly, Duke deposited that sum into Beca's bank account as a loan and Beca made monthly repayments of $10,486.29 and still owed $139,408.38 to Duke as at February 1992 when Duke took out proceedings to wind Beca up.

Mr Pselletes does not deny any of this, but says that the property which was sold to Duke and then taken back on hire purchase by Beca, was the property of Centurian. There is no evidence of this and in any event, as the liquidator has said, if it were the case the cause of action by Centurian may well have become statute barred. Accordingly I do not consider that there should be any offset for this claim.

4. Finally, there is a claim for $164,404 for the proceeds of the sale of real estate. The background facts as shown in Mr Pselletes' affidavit of 5 April 1997 is that Centurian was the registered proprietor of a property in Gordon Street, Brighton Le Sands. That property was sold in May 1988 and the proceeds of $164,404 were paid directly to AGC Advances as a part repayment of Beca's foreign currency loan facility. All the liquidator says is that there is nothing in the books or documents of prime entry of Beca recording the repayment and it may well appear that any claim is time barred. To my mind, there is sufficient material to show that it is more likely than not that this amount was paid to Beca and went to reduce Beca's liability to Autralian Guarantee Corporation in respect of its offshore loan. For the reasons I gave in the allied proceedings 1513/1992 I do not consider that it is extraordinary that this payment by a surety to one of Beca's credits did not appear in the books; it was a complicated transaction which may have been beyond the capacity of the book-keepers.

As to whether it is statute barred, again I am not assisted by the fact that this matter was not really argued. As Durham says in Set-Off 2^nd ed (Oxford 1996) p 81, there is a grey area of the law where a liquidator sues in respect of a matter that occurred many years ago, the defendant seeks to answer the demand with a transaction of the same age and the liquidator seeks to invoke the Limitation Act in respect of the alleged set-off or vice versa. If the matter came down to one of decision perhaps the court should direct its officer, the liquidator, not to take the limitation point. I do not consider in the present case that in view of the tentative way the limitation point is put forward I should let it stand in the way of any set-off.

More worrying is the fact that not only is there any lack of entry in Beca's books of an obligation to its surety, Centurian, for paying AGC, there does not appear to be any record whereby AGC received $164,000 and credited it to Beca's account. However, throughout most of this case I have been wrestling with inadequate factual material and I can only decide it on the balance of probabilities on the evidence before me.

Accordingly, the court finds established $316,404 of the amount set out in the cross demand. The liquidator's claim of $534,945 exceeds this amount, so that Centurian owes Beca $218,541. The way the case was presented to me, there should thus be a winding up order made on Beca's petition against Centurian.

There may be some debate about these reasons, and about the orders that should flow from them including whether Mr Wily should be appointed liquidator of Centurian. I accordingly will publish these reasons and allow the matter to be listed for short minutes to be brought in. Those short minutes may be brought in on 8 September 1997 at 10 am. I have already, under s 459R of the Corporations Law, extended the time to determine the application to wind up Centurian to 31 August 1997. I believe the material in my judgment gives special reason why that date should be further extended and I accordingly extend it until 30 September 1997.