Damelian Automobile Pty Limited (Receivers and Managers Appointed) v Ricardo Rovira Damelian
[2012] NSWSC 950
•20 August 2012
Supreme Court
New South Wales
- Amendment notes
Medium Neutral Citation: Damelian Automobile Pty Limited (Receivers and Managers Appointed) -v- Ricardo Rovira Damelian [2012] NSWSC 950 Hearing dates: 13 & 14 August 2012 Decision date: 20 August 2012 Jurisdiction: Equity Division - Commercial List Before: Hammerschlag J Decision: Judgment for the plaintiff for $1,876,266.25
Catchwords: CORPORATIONS - Corporations Act 2001 (Cth) ("the Act") ss 9, 286(1), 429 and1305 - company books and records - presumption that books kept by body corporate under a requirement of the Act are prima facie evidence of any matter stated or recorded - director's loan account records his indebtedness to the company - where company is placed in receivership and director signs Report as to Affairs stating that he is a debtor of the company - director challenges accuracy of loan account balance on the basis that additional matters should be recorded and certain entries were incorrectly included - CONTRACT - where director borrows money and on lends it to company - whether agreement by company to pay interest Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Electrical Enterprises Retail Pty Ltd v Rodgers (1988) 15 NSWLR 473 Category: Principal judgment Parties: Damelian Automobile Pty Limited (Receivers and Managers Appointed) ABN 62 003 688 837 - Plaintiff
Ricardo Rovira Damelian - DefendantRepresentation: J.R. Williams - Plaintiff
V.R.W. Gray - Defendant
Allens Linklaters - Plaintiff
Moloney Lawyers - Defendant
File Number(s): 2012/7985
Judgment
INTRODUCTION
HIS HONOUR: Section 286(1) of the Corporations Act 2001 (Cth) ("the Act") provides that a company must keep written financial records that:
(a) correctly record and explain its transactions and financial position and performance; and
(b) would enable true and fair financial statements to be prepared and audited.
Section 1305 of the Act provides as follows:
(1) A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.
(2) A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1).
Section 9 of the Act defines books to include financial reports or financial records, however compiled, recorded or stored.
On 5 September 2011, the National Australia Bank ("the Bank") appointed Messrs Steven Sherman and Jim Sarantinos to be receivers and managers of the company, pursuant to a registered fixed and floating charge over its assets and an undertaking.
The plaintiff ("the company") sues the defendant for $1,876,266.25. This amount is recorded in the company's books as being owed to it by the defendant at that date.
At all material times the defendant, Ricardo Rovira Damelian (commonly known as Ric or Rick), was the managing director and chief executive officer of the company. He is presently its sole director. Through other entities he owns and controls all of its shares and has done so since 1 August 2006. Before that, his brother, Mr Robert Damelian, owned and controlled 30 percent of the company.
Section 429 of the Act obliges directors of a corporation to which a controller (including a receiver) is appointed to make out and submit to the controller a report in the prescribed form about the affairs of the corporation as at the date of the receivership.
On 13 September 2011, the defendant signed, as he was required to do, a Report as to Affairs of the company as at the date of its receivership. He certified that the particulars contained in it were to the best of his knowledge and belief.
The Report as to Affairs identifies the defendant as a sundry debtor of the company for $1,645,495. This is the amount recorded in the company's books as being owed to it by him as at 30 June 2011. The company's books record that his indebtedness increased between 30 June 2011 and the date of the receivership to the amount claimed.
The defendant also signed a questionnaire given to him by the receivers. In it, he stated, amongst others, that financial reports were reviewed by him and the company's financial controller monthly.
Notwithstanding that the company's books record the defendant as a debtor and that he certified his own indebtedness to the company in the Report as to Affairs, he denies any indebtedness to the company.
THE CLAIM
The company was established by the defendant in 1978 to operate a motor vehicle dealership. He says it became the largest Honda dealership in the Southern Hemisphere. Over time, a number of companies were incorporated to operate different divisions. The company was the main trading entity and provided treasury services for other companies in the Group.
At the time of the receivership, the company had two other directors in addition to the defendant. They were the company's internal financial controller, Ms Fadia Chidiac (who had been with the company for 16 years), and the defendant's wife, Mrs Jacqueline Damelian.
The company secretary was Mr Philip Joannou, who was also its external accountant. He had been the company's external accountant and the defendant's personal accountant for over 30 years.
The operating financial records of the company were maintained on a computerised system known as MYOB.
A trial balance extracted by the receivers on 11 April 2012, records that the defendant owes the company $1,876,266.25. A trial balance as at 1 July 2002 shows that as at that date, the defendant's account with the company was in credit for $264,520.40.
The company maintained an account, designated number 2-2200 and named "Rick Damelian", being the defendant's loan account with the company ("the loan account"). The entries for the loan account for the period 1 July 2002 to 6 September 2011 are recorded in a ledger described as "Account Transactions [Accrual]".
The loan account is a running account. From 1 July 2002 to the date of the receivership, $25,652,055.21 was debited to the defendant and $23,511,268.56 was credited to him. There are hundreds of debit entries. Descriptions of the debits identify them as arising from payments made by the company, amongst others, to schools, cable television providers and credit cards providers. There are far fewer credit transactions. Taking into account the opening credit balance of $264,520.40, the amount owing by the defendant to the company reflected on the account is $1,876,266.25. No interest was charged or paid by either party on any outstanding balance at any time or at all.
The defendant challenges entries in the loan account falling into three categories. I will deal with each challenge in turn.
However, at the outset I record that the defendant was an entirely unsatisfactory witness who gave untruthful evidence.
He gave uncorroborated evidence of a number of conversations, including with a Bank officer (Mr Darrell Leeson), Ms Chidiac, Mr Robert Damelian, a long-term advisor (Mr Ronald Brien) and Mr Joannou. None of these persons was called. Leaving aside that it may be inferred that their evidence would not have assisted the defendant, I feel no actual persuasion arising from his testimony that any conversation recounted by him actually occurred.
Absent some reliable, contemporaneous record or other satisfactory corroboration of his evidence, it is not safe to place any reliance on it.
The defendant now disavows his certification of his indebtedness to the company in the Report as to Affairs, saying that the Report was prepared by others without any input from him and that he never read it. His affidavit evidence attributed this to his state of mind being "unstable at the time". His evidence under cross-examination was a little different. He referred to being in a state of shock and unable to concentrate and also to being heavily medicated and their being several factors that did not allow him to be at his peak to concentrate. He also disavows the correctness of answers given by him in the receivers' questionnaire. Significantly, some of the answers concern his personal state of mind at the time. The documents were completed by a combination of Mr Joannou and Ms Chidiac. The Report as to Affairs was signed in the presence of a solicitor, Ms Kirsten Farmer. His evidence was that he did not read the contents, did not understand the forms, they were not explained to him nor were they discussed with him by either Mr Joannou or Ms Farmer. I do not believe the defendant's evidence that the documents were prepared without any input from him and I do not believe that he did not read any part of them or did not understand them.
During the course of his evidence the defendant also sought, in my view disingenuously, to convey an impression of a lack of knowledge of the business and financial affairs of the company.
THE HOME MORTGAGE
The defendant's first challenge concerns debit entries, totalling $3,920,419.89, recording payments of principal and interest made to the Bank by the company on his behalf in respect of home loans which he took out with the Bank.
In 1985 Damelian Properties Pty Ltd (formerly Epitre Pty Ltd), a company owned and controlled by the defendant, bought a residential unit (unit 10) at McMahons Point, New South Wales using funds borrowed from the Bank on the security of a registered first mortgage. This property became the defendant's residence. In 1988 the defendant acquired the adjoining unit (unit 9) in his personal name, again using funds borrowed from the Bank on the security of a registered first mortgage. The defendant thereafter resided in both units. By 1996 the loan moneys had been repaid to the Bank but the mortgages on the units remained registered.
The defendant says that in late 1996, Mr Darrell Leeson of the Bank proposed to him that the commercial rates of interest then being paid by the Group on commercial bill facilities could be reduced if the Bank's lendings were secured against his home. He says that Mr Leeson told him that he had authority to approve a home loan facility of up to $3,000,000, which could be paid directly off the Group's commercial facilities, which would mean effectively getting corporate money at home loan rates. Mr Leeson told him that the unit not owned by the defendant personally would need to be transferred into his name. He says that shortly after this, he received from the Bank a document entitled National Tailored Fixed Home Loan Executive's Choice, outlining the proposed transaction.
The defendant says that he discussed the proposal with Mr Brien, who had previously worked for Custom Credit for many years and with whom he had dealt in regard to vehicle floor plans. Upon retirement, Mr Brien was employed by the Group as an assistant financial controller. Mr Brien's view was that if it was going to save money, it was worth looking at. Mr Brien said he would "run the numbers with Fadia" (meaning Ms Chidiac).
The defendant says that shortly thereafter he discussed the proposal with Ms Chidiac. He says that he asked her to check calculations and to prepare a calculation to be considered by the Board.
The defendant says he received further documents from the Bank in late December 1996, which he gave to Ms Chidiac with a request that she work with Mr Brien to prepare calculations so that he could run it by other members of the Board. In evidence were calculations which he said were undertaken by Ms Chidiac in relation to the proposal.
He says that in early 1997, Mr Leeson, on behalf of the Bank, approved a home loan facility for $3,000,000.
He says that after receiving this approval, he spoke with other members of the company's board, which then included Mr Robert Damelian, Mr Jason Varone (who managed the Prestige Division) and Mr Brien.
He says that in a conversation with his brother, there was reference to the necessity for the defendant to transfer the company-owned unit into his personal name. He says that he said words to the effect that "the Group can still continue to pay for the loan, simply at a reduced rate" and "as long as it makes no difference to me, I'm happy to proceed with it".
He says he had a similar conversation with Mr Varone. Mr Varone was not called.
The defendant says that on 10 April 1997, unit 10 was transferred to him for $920,000, which was paid through a combination of savings and the creation of a loan account between himself and Damelian Properties Pty Ltd.
The objective material satisfies me as to the following matters.
Firstly, unit 10 was transferred to the defendant, and thereafter, over a number of years starting in April 1997, the Bank approved a series of home loan facilities (later ones discharging all or part of earlier ones) under which the defendant borrowed as follows:
April 1997
$3,000,000
April 2001
$4,800,000
October 2002
$2,756,530.31
May 2003
$2,000,000
May 2004
$5,000,000
May 2005
$5,000,000
May 2006
$7,290,000
May 2007
$7,184,740
June 2008
$7,018,951.66
January 2010
$6,941,192
The defendant mortgaged unit 9 and unit 10 to the Bank to secure his Indebtedness. The first loan reduced the company's then outstanding liabilities on a bill facility with the Bank by $3,000,000.
Secondly, the money borrowed by the defendant under the home loans was made available to the company and the defendant's loan account was credited accordingly.
Thirdly, the company made all repayments (which were by weekly instalments) to the Bank on the defendant's behalf and his loan account was debited accordingly.
Fourthly, no interest was charged by the defendant to the company or reflected in its books as being payable by the company to him. No interest was ever paid to him and none was ever demanded.
Book entries of themselves do nothing to create an agreement. To have any effect, they must represent the agreement between the parties involved. Parties can put their agreement into effect through entries in books of account which represent the balance struck between them: see Electrical Enterprises Retail Pty Ltd v Rodgers (1988) 15 NSWLR 473 at 489.
It may be safely inferred, and neither party put to the contrary, that the entries in the books of the company represent an agreement or agreements between the parties under which the defendant lent money to the company. The relevant credit entries in the loan account reflect the advances which the defendant made to the company.
It is objectively established that the money which the defendant lent to the company was money which he had borrowed from the Bank under the home loans. It is also objectively established that the company paid directly to the Bank, on the defendant's behalf, instalments (including interest and some principal) due under the home loans.
The entries in the books of the company represent the parties' agreement that the defendant would be liable to the company for interest paid by it to the Bank on the defendant's behalf.
The defendant's case is that there was an agreement between the parties that he would advance moneys to the company, which advances would be recorded in the company's books in a separate loan account. However, he contends (and pleads) that the agreement included an additional term that he could, at any time, call on the company "to repay such advances plus any interest and other charges payable to NAB thereon". (During the hearing, he sought, and was granted, leave to amend his Commercial List Response by adding the words emphasised to the term pleaded.)
Although infelicitously expressed (because the company had already paid interest and repaid principal on his behalf), the defendant's contention is that the agreement between him and the company includes a term under which he is entitled to demand from the company an amount equivalent to the interest on his home loan for which he was liable to the Bank. If this was the case, he would on making such a demand be entitled to have his loan account credited by amounts equal to those which the company has paid on his behalf. Although not pleaded as an entitlement to be indemnified by the company for his obligations to the Bank in respect of interest, it seems to me that this is the substance of his position. Either way, it amounts to the assertion of an agreement that the company would make him whole in respect of his liability to the Bank for interest or that he would be entitled to interest from the company equivalent to that which the Bank was charging him.
By virtue of the presumption in s 1305 of the Act, the entries in the company's books are prima facie evidence of the defendant's indebtedness to it in the amount claimed.
The defendant accepted that he bore the onus of establishing the asserted contractual term, however framed, that he could, at any time, call on the company to repay any advances plus any interest and other charges payable by him to the Bank.
For the reasons which follow, he has fallen far short of discharging that onus.
An initial observation is that in his affidavit evidence, the defendant took a different position, namely that the company had incorrectly debited his loan account in respect of the interest payable to the Bank, on the footing that the company was liable for that interest and not himself. He deposed to having an "offsetting claim" for the total amount of the interest, which he said is properly a liability of the company and not his. This was apparently intended to reflect the contention (ultimately not pressed) that the true parties to the home loan were the Bank and the company, and not the Bank and the defendant.
He now does not challenge the efficacy of the entries, but asserts an entitlement to make demand which, if he has it, would give rise to a countervailing credit in his favour.
The entries in the company's books (over a period of more than ten years) reflect no agreement, nor do they give rise to any inference that the company had any obligation, to pay the defendant any interest on the money lent by him to the company, on demand or otherwise. The loan account was debited for interest paid on his behalf over many years without any corresponding entry or any other objective feature which might suggest that the money was lent to the company at interest. His certification in the Report as to Affairs is inconsistent with any such contention that he had any countervailing entitlement. It is a compelling admission to the contrary.
No doubt because of his initial stance that the debit entries should not have been made, the defendant gave affidavit evidence that he was never personally involved in the preparation or maintenance of the loan account and that he was not responsible for physically entering information on it nor did he ever give any directions to any person employed within the Group with respect to those matters. His evidence was that the loan account was prepared by Ms Chidiac together with Mr Joannou and that he relied on them to prepare and maintain his loan account with the company. His evidence was that he provided no input or instructions to them with respect to the preparation or maintenance of the account, that he was generally aware that a loan account existed but relied entirely on Ms Chidiac and Mr Joannou with respect to those matters.
Under cross-examination, he gave the following evidence:
Q. So from that we can assume then that you were never given regular updates by Miss Chidiac as to the status of your loan account, is that correct?
A. That is correct.
Q. She never gave you a summary document setting out the status of the loan and its balance?
A. No, I never received one.
Q. And you never had meetings, and I mean face-to-face meetings with her, where she summarised your loan account with you?
A. I had face-to-face meetings about other matters, but never about this loan.
This evidence was untruthful. His avowed lack of knowledge of the state of his loan account at any time was a fabrication.
On 4 June 2010, the defendant's wife, Mrs Jacqueline Damelian, emailed Ms Chidiac as follows:
Rick has asked if you could please give him an update on his Director's Loan account as soon as possible.
A few minutes later Ms Chidiac replied:
Last summary I gave him was dated 30 April 10...I went through it with him in his office about 2 weeks ago.
I'm still reconciling May...can I do it next week??
When confronted with this material, the defendant's adamant evidence that he never received any such summary changed to a lack of recollection.
It was put on behalf of the defendant that it was inherently commercially improbable that he would have lent the company money free of interest, amongst others because he did not have personal resources to pay the interest to the Bank.
It was also put that there was no apparent taxation advantage to the company with respect to the interest paid on the defendant's behalf because any deduction for interest paid would be counter-balanced by debiting his loan account.
There was some debate about what might be the correct taxation treatment and effect of the interest payments made by the company, the debits to the defendant's loan accounts in respect of them and any entitlement of the defendant to demand reimbursement. However, no evidence was adduced of the company's tax treatment of the payments made to the Bank or the debits to the defendant's loan account. There was no evidence of how the defendant's own tax returns were prepared. His evidence was that his accountant prepared his tax returns and that he never provided any information whatsoever. He was asked whether he filed tax returns in circumstances where he did not ask those who prepared them the basis upon which they had been prepared, to which he responded "Mostly that is correct". The Court is left in the realm of speculation in which it would be inappropriate to engage.
An interest-free loan in the circumstances of these parties is far from commercially improbable or inexplicable. The defendant owned and controlled the company and he treated its business as his own personal property and fiefdom. He had personally guaranteed the totality of the company's indebtedness to the Bank. Significant amounts of money borrowed from the Bank and on lent to the company (for commercial purposes) were used to pay his personal expenses. Through his ownership, he was the beneficiary of the loan to the company on favourable terms. Whether the company ever demanded payment from him of any balance in its favour on the loan account was a matter effectively in his own hands. He no doubt did not have in mind the possibility that the company would come under the stewardship of external controllers, usurp his control and then make demand on him.
The account was conducted on a running basis. This is inimical to the proposition that payment of single or categories of expenses could be demanded at any time.
I have already said I do not accept the defendant's evidence with respect to the conversations recounted by him. However, in my view, those conversations do not, in any event, establish any such term.
The defendant has not displaced the prima facie presumption of his indebtedness to the company which arises from the entries in its books. More than that, I consider that his certification of that indebtedness in the Report as to Affairs is accurate.
It follows that his submission that he is not liable for amounts paid by the company on his behalf to the Bank in respect of the home loans must be rejected.
THE MOSMAN HOUSE
First Pacific RRD Pty Limited ("RRD") is a company owned and controlled by the defendant and of which he is the sole director. The Bank appointed receivers to it on 8 September 2011.
In about January 2002, the defendant's former wife, Kaye Annette Damelian, and RRD bought a property at 20 Brierley Street, Mosman for $2,350,000. The defendant says that his former wife and RRD obtained a loan from the Bank on the security of a first mortgage. The defendant says that his former wife and RRD repaid the Bank and that the mortgage was discharged in June 2009.
The property was sold in December 2009 for $2,850,000.
Over the period from 11 July 2002 to 16 October 2009, the company debited to the defendant's loan account payments totalling $2,133,595. Most of these debits bear the notation "loan repayment". There are various other notations, including "land tax", "Mosman Municipal Council", "Marketing cost for sale of Mosman" and "Advertising 20 Brierley Street".
The loan account records a credit on 12 February 2004 of $294,324.74 against the notation "Re finance Mosman".
It records a credit of $1,394,131.83 on 16 December 2009 against the notation "Sale of Mosman Property". It records a further credit of $119,717.78 on 17 December 2009 against the notation "Sale of Mosman Property".
The debits in respect of the Mosman property exceed the credits by $325,420.66. The defendant says that all of these entries should be reversed which would result in his loan account liability being reduced by the net difference.
He contends that the entries are erroneous because he had no personal proprietary interest, whether legal or equitable, in the Mosman property or its proceeds, because it was owned by RRD and his former wife. From this he says it follows that there was no entitlement on the part of the company to debit him for the payments made, nor was he entitled to be credited for the sale proceeds received. He says that he never resided at the property and that certain parts of it were leased to third parties who paid rent and that the rent was paid to the company. His stance is that he was a stranger to all transactions relating to the Mosman property. He pleaded in the Third Amended Commercial List Response that the company erroneously recorded transactions affecting 20 Brierley Street, Mosman "which had nothing to do with the defendant".
Firstly, the defendant's contention that he was a stranger to the transactions is a fabrication. The sale proceeds of Mosman were, on his instructions and with his authorisation, paid to the company for the credit of his loan account.
Under cross-examination he gave the following oral evidence:
Q. So may his Honour take it from your evidence that you were never aware of any of the debit entries to your account for the loan repayments and the expenses in respect of the Mosman property?
A. Would you please repeat that question?
Q. You were never aware that debit entries were being made to your account in respect of the Mosman property?
A. I don't understand the question. I don't understand.
Q. You are aware, aren't you, now, that one of the credit entries in your loan account is for half of the sale proceeds of the property in December 2009, you are aware of that now, aren't you?
A. Yes, I am.
Q. And you say that should not have been posted to this account, don't you?
A. To my personal account, no.
Q. And that's because, as far as you're concerned, that it was an entry that should have been posted in an account with First Pacific RRD Pty Limited, not you personally?
A. That is what I claim, yes.
Q. And if you had become aware or you had become aware at some point that somebody was proposing to credit the sale proceeds to your personal loan account, you would have straight away recognised that that was an error, wouldn't you?
A. I would have.
Q. And that was because to your mind there was no doubt that this property had nothing to do with your loan account?
A. No, that was an investment by this First Pacific company.
Q. So if someone told you that the sale proceeds were going to be credited to your loan account, you would have straight away told them that's not correct?
A. I assume I would have. That would have been my reaction.
Q. And may we take it from that you certainly would not have authorised crediting of the sale proceeds to your loan account?
A. I was not even ever consulted.
Q. And you're quite confident about that?
A. Comfortable?
Q. Sorry, confident?
A. Confident. Oh, confident. What do you mean "confident", I don't understand? If I'm sure of what I'm telling you is correct.
Q. I'm just asking are you sure?
A. I am sure that what I'm telling you is correct, sir.
Q. You are telling his Honour that you have no doubt in your mind you were not aware the sale proceeds were credited to your loan account?
A. I had no idea that this is what it was being done, the financial officers of the company.
However, he was then confronted with the existence of the following written communications for which he had no explanation.
On 11 December 2009, Mr Gerry O'Neill, of the firm of solicitors Shaw Reynolds Bowen & Gerathy, wrote the following email to the defendant:
YOUR SALE TO DE VILLIERS
PROPERTY: 20 BRIERLEY STREET, MOSMAN
Dear Rick
I enclose adjustment sheet as at 15 December 2009.
The net balance available on settlement will be $2,564,735.96 (i.e. after payment of balance of Council & Water rates).
I believe these moneys should be distributed as follows:-
A. TO K.A. Damelian
Half $2,2564,735.66 [sic]
= $1,282,367.83
Less 115,000.00
$1,167,367.83
B. TO Damelian Automobile Limited
Half $2,564,735.66
= $1,282,367.83
Plus 115,000.00
$1,397,367.83
Less 3,236.00 (SRBG Costs & disbursements)
$1,394,131.83
NOTE We will direct the agent to draw the balance of the deposit in two equal cheques one payable to Kaye & the other to Damelian Automobile Ltd.
Please advise if this meets with your approval.
Regards (emphasis added)
On 17 December 2009, Shaw Reynolds Bowen & Gerathy wrote to Mr Damelian as follows:
Dear Rick
THE COMPANY AND K DAMELIAN'S SALE TO DE VILLIERS
PROPERTY: 20 BRIERLEY STREET, MOSMAN
We are pleased to confirm that your sale was settled on 15 December 2009.
On settlement, the sum of $2,566,249.96 was due to the Company and Kaye Damelian as set out in the enclosed settlement sheet.
These moneys were disbursed as follows:
1. Mosman Council (balance outstanding Council rates
$1,236.50
2. Sydney Water (balance outstanding water rates)
277.80
3 Shaw Reynolds Bowen & Gerathy (our costs and disbursements
As per the enclosed Tax Invoice)
3,236.00
4. K.A. Damelian
1,167,367.83
5. Damelian Automobile Limited
1,394,131.83
TOTAL
$2,566,249.96
Cheque 5 above was deposited to Damelian Automobile Limited's account with AMP Banking in accordance with your instructions using the deposit slip provided by your office.
The amount paid to Damelian Automobile Limited was calculated as shown in Gerry O'Neill's email of 11 December 2009 (copy enclosed).
The selling agents have accounted to us for the deposit and we enclose their Statement of Account together with their remittance advice showing an amount of $119,171.78 (being your half share of the total) drawn in favour of Damelian Automobile limited. These moneys too were sent to AMP Banking as instructed.
For your record purposes and safe keeping we enclose:
1. The original stamped contract dated 12 November 2001 (when the property was purchased); and
2. The counterpart contract for sale executed by the purchaser and dated 3 November 2009.
3. Original Deed of Guarantee dated 29 January 2009.
We thank you for the favour of your instructions in this matter and take this opportunity of wishing you and yours a very merry Christmas and a Happy and prosperous New Year.
Yours faithfully (emphasis added)
(The settlement sheet enclosed with the letter included as one of the intended distributions "Bank Cheque in favour of Damelian Automobile Ltd for $1,394,131.83".)
On 17 December 2009, Ms Chidiac sent the following email to the defendant and Mrs Jacqueline Damelian:
Rick,
I called amp this morning
$1,394,131.83 has been deposited into the account - cleared funds
I then called Gerry O'Neil - our portion of the deposit held by the agent = $142,500 was sent to amp last night
I will call amp again tomorrow morning to confirm $142,500 is in there.
Thanks
Fadia Chidiac
On 17 December 2009, the defendant sent the following email to Ms Chidiac and Mrs Jacqueline Damelian:
Fadia;
I think that the amount that we are expecting from the Agent is less than the $142,500; I believe the Agent's commission of $47,000 approximately will be deducted of the amount being held, (original deposit of 10%); what we can expect would be closed to $118,000; please confirm tomorrow.
Thanks, Rick
On 18 December 2009, Ms Chidiac wrote to the defendant and Mrs Jacqueline Damelian as follows:
Hi Rick,
Yes you are correct.
Called amp this morning and confirmed an amount of $119,171.78 was deposited yesterday.
Closing balance in amp account is $1,523,741
Thanks
Fadia Chidiac
Then on 18 December 2009, the defendant sent the following email to Ms Chidiac and Mrs Jacqueline Damelian:
Fadia;
Will you take out the $30,000 for Kaye's car to settle the books???
Can you let me know how do you propose to divest the balance???
Rick
Then on 18 December 2009, Ms Chidiac wrote to the defendant and Mrs Jacqueline Damelian as follows:
I was going to transfer $1.5m from amp by 31-12-09
$30,000 to RDPL to reduce vehicle debtors - Kaye's car
$1.470m to DAL to credit your directors loan
$1.470m to DAL will then lend to REPL to reduce nab floorplan facility
Correct?
Fadia Chidiac (emphasis added)
Then on 18 December 2009, the defendant sent the following email to Ms Chidiac and Mrs Jacqueline Damelian:
Thanks, that is fine
Rick (emphasis added)
Secondly, the contention that the entries should be reversed because the defendant had no legal or beneficial interest in the Mosman property or its proceeds is fantastic. That he had no such interest is of no moment.
The company and RRD were creatures of the defendant. There is no evidence of any direct dealings between the company and RRD. The only interface between them in the context of the Mosman property revealed by the evidence is the defendant himself. Payment of the proceeds to the company was on his instructions. It may safely be inferred that in so far as RRD's concurrence was needed, it was given by the defendant on RRD's behalf.
The inference is irresistible that the debits to the loan account for payments relating to the Mosman property reflect the company advancing, at the instance of the defendant, money for the benefit of RRD, which money the defendant agreed to reimburse the company. The payment to the company of the proceeds of sale of the Mosman property is repayment by the defendant effected by RRD paying monies on his behalf to the company which the company credited to his loan account. Both the debits and the credits reflect contractual arrangements. The state of proprietary interests in the Mosman property and its proceeds does not intrude.
Finally, whatever else may be said, it is clear that the defendant has failed to displace the presumption in s 1305 of the Act that the books of the company are prima facie evidence of his indebtedness to the company which they state and record.
pymble house
Pymble House Pty Ltd is a company which, through other entities, the defendant owns and controls and which he has at all material times owned and controlled. He is its sole director. In 1999, Pymble House Pty Ltd bought a house at 76 Yarrara Road, West Pymble. It sold it in 2009.
Upon its acquisition the defendant's parents took up residence there. The defendant's father passed away in November 2000 and his mother moved out in September 2002.
There is no dispute concerning the period 1999 to September 2002. During that period, the company paid rent to Pymble House Pty Ltd which it in turn debited to the defendant and his brother in equal shares. This reflected an arrangement that the defendant and his brother would pay (and did pay) rent to Pymble House Pty Ltd for their parents by way of the company advancing funds to them by paying the rent on their behalf.
However, during the period 31 December 2003 to 31 December 2006 the company continued to incur an obligation to pay Pymble House Pty Ltd rent and continued to debit a portion of the amount so incurred to the defendant's loan account. This is reflected in an account numbered 1-3450 entitled "Advance to Pymble House P/L" together with the loan account. The company debited the defendant with $70,210 in this regard.
The defendant contends that these debits to his loan account are incorrect because at no time between September 2002 and the sale of the Pymble property did he occupy or rent the house nor did he rent the house for the benefit of anyone else. He gave affidavit evidence that the house was rented during the period at commercial rent and that the income derived from the house was paid to the company and that at no time did he personally receive rental income or receipts from the house. In his Third Amended Commercial List Response he pleaded that the company "erroneously recorded in the Loan Account transactions affecting 76 Yarrara Road, Pymble ... which had nothing to do with the Defendant". In substance his position appears to be that the arrangement under which he was obliged to reimburse the company for rent paid to Pymble House Pty Ltd came to an end after his mother moved out of the property.
The defendant's evidence again proved to be unsatisfactory and not worthy of belief. I directed some questions to him about rental derived from the Pymble house. His answers diverged from his affidavit evidence. He said that he did not know what happened to the rental and that it should have been paid to Pymble House Pty Ltd. He said he assumed that if it was not paid to the company it was paid to "somebody within the group".
Under cross-examination he went on to say, "I probably at the time did not distinguish the plaintiff company or one of the group companies or Pymble House as such".
The company's books reflect no receipt of any money from rent in respect of the renting of the Pymble house. The books do, however, record the company's obligation to pay Pymble House Pty Ltd rent during the period concerned.
Significantly, Pymble House Pty Ltd is under the control of the defendant; it is not in receivership. The records, if any, which would establish what happened to the rent are in his power to produce, but he produced none.
The defendant has fallen far short of displacing the prima facie position revealed by the company's books that he is liable to the company in respect of the obligation incurred by it to pay rent to Pymble House Pty Ltd for the period concerned.
Conclusion
There will be judgment for the plaintiff against the defendant for $1,876,266.25. I will hear the parties on costs.
The exhibits are to be returned.
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Amendments
21 August 2012 - Paragraphs switched
Amended paragraphs: Paragraphs 4 & 5
Decision last updated: 21 August 2012
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