In the matter of the Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of Carlos Antonio Pavez

[2013] NSWSC 655

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of the Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of Carlos Antonio Pavez [2013] NSWSC 655
Hearing dates:	24 May 2013
Decision date:	24 May 2013
Jurisdiction:	Equity Division
Before:	Bergin CJ in Eq
Decision:	Order for payment out to plaintiff
Catchwords:	[CONTRACT] - Whether person, other than named party, is party to building contract - where builder entitled to call for evidence of title over which charge is to be granted - where multiple blocks in Site over which charge is to be granted, some owned by named contracting party and others owned by third parties and/or director of named party - whether debt owed by director, not named as party to the contract - whether monies paid into Court should be paid out to plaintiff as Official Trustee of the bankrupt estate of the director
Legislation Cited:	Bankruptcy Act 1966 (Cth) Real Property Act 1900
Cases Cited:	Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Chalmers v Pardoe [1963] 1 WLR 677 Rising Developments Pty Ltd v Hoskins (1996) 39 NSWLR 157 The Unity Joint Stock Mutual Banking Association v King (1858) 25 Beav 72; 53 ER 563
Category:	Interlocutory applications
Parties:	The Official Trustee in Bankruptcy (plaintiff) Hinds Constructions Pty Limited (creditor)
Representation:	FT Roughley (plaintiff) IJ King (creditor) TressCox Lawyers (plaintiff) Hansteins Lawyers (creditor)
File Number(s):	2011/372181
Publication restriction:	Nil

Judgment - EX TEMPORE

1. This is an application brought by the plaintiff, the Official Trustee in Bankruptcy of the Bankrupt Estate of Carlos Antonio Pavez, for an order that the Court disburse to the plaintiff the amount that was paid into Court consequent upon the sale of property owned by the bankrupt (together with accumulated interest). The amount paid into Court was $165,135.88.

1. The plaintiff relies upon the affidavits of Tara Czinner sworn on 4 November 2011 and 28 March 2013; Kirsten Farmer affirmed on 7 February 2012 and 25 March 2013; and Holly Ho-Yi Lam sworn on 25 March 2013 and 26 April 2013. The plaintiff also relies upon the affidavit of Eddie (Ezio) Senatore, the liquidator of the company, Elitron Pty Ltd (in liq), of 22 May 2013.

1. The plaintiff notified a number of parties who had made contact with the Trustee's office of this application. Although there were five potential claimants being Balanced Securities Pty Limited, Pepper Finance Corporation Limited, Freshstart Mortgage Solutions Pty Limited, Margaret Ann Stephens and Hinds Constructions Pty Limited (Hinds Constructions); the only person maintaining a claim on the money paid into Court is Hinds Constructions. There was a further notification to the Trustee's office by Seevali and Dinesha Panagoda who have not made any formal claim on the monies paid into Court and have not appeared today.

1. Hinds Constructions entered into a contract on 6 May 2006 to build a number of houses in Canberra. The parties to the contract were Elitron Pty Limited (Elitron) and Hinds Constructions. The site identified in the building contract was "11-20, 145 Gungahlin".

1. The bankrupt had signed a purchase agreement to purchase block 11 and Elitron had signed agreements to purchase blocks 12, 14, 15, 18 and 19. Other purchasers had signed contracts to purchase blocks 13, 16, 17 and 20. Those contracts were between the prospective purchasers and the vendor, Canberra Land Developments Pty Limited.

1. Hinds Constructions relies upon the affidavit of Paul Hinds, the principal of Hinds Constructions, affirmed on 27 April 2013, and those of Ivor Harold Nymans, solicitor for Hinds Constructions, affirmed on 29 April 2013 and 17 May 2013. Elitron's sole director was the bankrupt.

1. The serious issue in dispute between the plaintiff and Hinds Constructions is whether, on the proper construction of the building contract, the bankrupt was the real party to it. I should therefore turn to the building contract.

1. The building contract is entitled "Home Building Contract" and would appear to be the pro forma building contract prepared and distributed by the Master Builders Association of the Australian Capital Territory in 2001. On the front sheet of the contract there is a section for the "Owner/s Name/s" where there is written "Elitron Pty Ltd" with an address in Gundaroo Road, Sutton. The company search of Elitron records the company's registered office in Deakin in the ACT. The address for the bankrupt is at Mulligans Flat Road, Sutton. The "Builder" is identified as Hinds Constructions. As I have already said, the "Site" is recorded as "11 - 20/145 Gungahlin".

1. The terms of the contract include the following:

4. OWNER'S RESPONSIBILITIES BEFORE COMMENCEMENT OF WORK

(a) Before the commencement of the Works, the Owner will show the Builder reasonably satisfactory:

(i) evidence of the Owner's title; and

(ii) evidence of the Owner's capacity to pay the Contract Sum to the Builder at the times and in the manner specified.

(b) If the Owner does not produce that evidence within ten (10) days of this Contract, the Builder may end this Contract under Clause 27.

...

18. ASSIGNMENT AND SUBCONTRACTING

(a) Neither party will assign the rights or obligations under this Contract without the written consent of the other.

(b) The Builder may subcontract any part of the Works, but that does not relieve the Builder from obligations under this Contract.

...

20. DEPOSIT

(a) If indicated in Item A7.2 of Appendix A, the Owner will pay a deposit to the Builder before the commencement of Works.

(b) The deposit must be brought into account when the balance due under this Contract is calculated on Practical Completion.

21. PROGRESS PAYMENT

(a) The Contract Sum must be paid to the Builder as set out in Item A7 of Appendix A.

(b) The Builder must give the Owner a written claim for each progress claim.

(c) The Owner will pay the progress payment claim to the Builder within the period stated in Item A11 of Appendix A, or, if not stated, within seven (7) days of the date the claim is submitted to the Owner.

(d) Progress Payment claim will be paid in the preparation and values stated in Item B1 of Appendix B.

(e) A progress payment to the Builder is not proof or admission that any particular work has been executed in accordance with the Plans and Specification but only as payment on account.

(f) If the Builder does not receive a progress payment by the due date, in addition to any other rights it may have, the Builder is entitled to interest on the overdue amount at the rate in Item A18 of Appendix A.

...

31. CHARGE ON LAND

The Owner charges the Site with the payment to the Builder of all money payable to the Builder under this Contract or otherwise from the carrying out of the Works.

1. Appendix A to the Contract names the "Owner" as Elitron Pty Ltd and the "Builder" as Hinds Constructions. It records the site, the contract price ($2,331 million) and the date for practical completion.

1. Appendix C is entitled "Instrument of Agreement". It provides:

The Builder and the Owner agree that the Builder will carry out and complete the Building Works and the Owner will pay the Contract Price to the Builder in accordance with the terms and conditions of this Contract.

1. The building works proceeded and Hinds Constructions invoiced Elitron. A number of invoices are in evidence and there is nothing in those invoices referring to the bankrupt.

1. Hinds Constructions claims that it is a secured creditor and is entitled to the payment out of the monies paid into Court as against the plaintiff. "secured creditor" is defined in section 5 of the Bankruptcy Act 1966 (Cth) relevantly as "a person holding a mortgage, charge or lien on property of the debtor as a security for a debt due to him or her from the debtor".

1. The plaintiff claims that the debt due to Hinds Constructions pursuant to the building contract was a debt due from Elitron and not from the bankrupt.

1. The application was heard today, referred from Ball J sitting in the Applications List. Ms FT Roughley, of counsel, appeared for the plaintiff and Ms IJ King, of counsel, appeared for Hinds Constructions. Both counsel have prepared Outlines of Submissions and have also addressed the Court orally.

1. Ms King contends that there is an ambiguity in the building contract. That ambiguity is said to arise from Appendix C which makes provision for the signature "by or for and on Behalf of" the Owner and the signature "by or for and on behalf of" the Builder. In the signature section for the Builder above the word "Name", there is recorded "Paul Hinds on behalf of Hinds Constructions" underneath which Mr Hinds' signature appears. In the signature section for the Owner above the word "Name" there is recorded "Carlos Antonio Pavez", underneath which is the signature of Mr Pavez.

1. Ms King submitted "that at the time of entering into the contract Mr Pavez as the future owner of block 11 intended to create a charge over the land in favour of the builder". In this regard Ms King relied upon Rising Developments Pty Ltd v Hoskins (1996) 39 NSWLR 157. That was a case in which Brownie J considered an arrangement between the plaintiff, a builder, and the third defendant, the daughter of the first and second defendants. The first and second defendants were the registered proprietors of the subject land and the third defendant, the daughter, was the contractor with the builder.

1. The contract in that case included the following term (at 157G):

If there is an amount outstanding including any legal fees and costs associated with recovering an amount under this agreement the owner agrees that the land on which the building works are being undertaken is hereby charged in favour of the contractor for such outstanding amount. This clause shall not merge on completion.

1. In that case "the contractor" was defined as the plaintiff and "the owner" was defined as the third defendant. The application before his Honour was for an extension of a caveat. The question that his Honour identified for resolution was whether the plaintiff had an estate or interest within the meaning of section 74F of the Real Property Act 1900 in the land of which the first and second defendants were the registered proprietors and in which, on the face of the register, the third defendant, the daughter, had no interest.

1. His Honour said at 158E-F:

I do not think that the matter is to be resolved by reference to the use of the word "owner" in the building contract. It was a standard form of contract intended to be used on hundreds, perhaps thousands, of occasions. The term "owner" was simply a convenient way of identifying the party to the contract which was not the builder. Perhaps there is something to be said for identifying the person in that position as the proprietor in the old-fashioned way, notwithstanding that it is presently politically correct to use plain English forms of contract.

In any event, that use of the term "the owner" does not seem to me to be significant. In my judgment, the third defendant had a sufficient interest in the land within the meaning of section 74F of the Real Property Act to entitle the plaintiff to lodge a caveat.

1. His Honour referred to The Unity Joint Stock Mutual Banking Association v King (1858) 25 Beav 72; 53 ER 563. That was a case in which a father with an equitable interest in land had allowed his two sons to occupy the land and erect buildings thereon at great expense. It was held that in the circumstances the sons had a charge or a lien upon the property for the amount outlaid. Brownie J also referred to Chalmers v Pardoe [1963] 1 WLR 677 in which the Judicial Committee cited Unity Joint Stock Mutual Banking Association v King with apparent approval. His Honour said at 158D:

I do not think that there is any sound basis for distinguishing the evidence in this case from the evidence in Unity Joint Stock Mutual Banking Association. Here, the first and second defendants knowingly permitted the third defendant to erect the house on their land. In that sense they charged their interest in the land in favour of the third defendant and she then charged her interest in the land in favour of the plaintiff.

1. Ms King submitted that in the present case "it is not clear" that the bankrupt "was not a party to the contract". A further submission was made that if the Court makes a finding that the bankrupt was not a party to the contract it is undisputed that he gave Hinds Constructions instructions about the construction of a building on the land and that he benefited from the construction of the building on his land.

1. Ms Roughley submitted that the argument that the bankrupt was a party to this contract is unsustainable. In particular Ms Roughley referred to the provisions of clause 4 referred to above. Clearly, if the Owner identified in the contract did not within 10 days produce evidence of the Owner's title to the land upon which the charge was to be imposed and evidence of capacity to pay, then the builder was entitled to end the contract (clauses 4 and 27(a)(ii)).

1. It was submitted that having regard to the fact that Elitron was not the registered proprietor of the land, Hinds Constructions apparently proceeded without the proof that was available for it to obtain pursuant to its own contract. Ms Roughley submitted that this unfortunate state of affairs does not turn Hinds Constructions into a secured creditor of the person who in fact had or was to have title to the property, the bankrupt, and who was neither a debtor under, nor a contracting party to, the relevant contract upon which Hinds Constructions relies. It was submitted that Elitron and not the bankrupt is indebted to Hinds Constructions. In this regard Ms Roughley also pointed to the invoices to which I have referred earlier.

1. There was also evidence given by Mr Senatore in relation to Hinds Constructions' lodgement of a proof of debt in the liquidation of Elitron. It is not in issue that a dividend of $7,419.39 has been paid to Hinds Constructions by the liquidator.

1. It seems to me that the contractual relationship in this case is distinguishable from that to which Brownie J referred in Rising Developments v Hoskins. Certainly his Honour made no reference to other provisions of the 1996 version of the contract that was the subject of that case. Other than a general reference to the four stages of work (at 158). I respectfully disagree with his Honour's conclusions in relation to the identification of the Owner. I am of the view that where a contract identifies a party, whether as owner or otherwise, the parties need to be careful to identify those who in fact have the obligation to pay the other party, particularly where, as here, the contract sum is for a large amount, $2.3 million, and the Contract relates to building works on numerous blocks. There is nothing within this contract to suggest that Mr Pavez entered into the contract in his own capacity, notwithstanding that he signed for the owner in Appendix C. I do not regard that as an ambiguity that would call into question the identity of the contracting party. All the provisions of this contract provide that Elitron is the "Owner" and the contracting party.

1. Post-contractual conduct may be considered for the purpose of identifying whether a contract was formed: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 164 per Heydon JA. In this instance the tax invoices were sent to Elitron. It is not necessary to consider those invoices because I am satisfied that the terms of the contract are clear as to the identity of the parties.

1. Ms Roughley referred to Hinds Constructions' conduct in submitting a proof of debt in the liquidation. That seems to have been relied upon as evidence of the parties' intentions and whether a contract was formed. Once again I do not need to consider that aspect of Hinds Constructions' conduct because I am satisfied from the terms of the contract itself that the parties intended that Elitron was to be the contracting party. Hinds Constructions had the benefit of clause 4 to seek from the Owner evidence of its title. It did not do so. I am satisfied that Mr Pavez was not a party to the contract that provided for a charge over "the Site".

1. In all the circumstances I am satisfied that Hinds Constructions is not a secured creditor of the bankrupt estate. In those circumstances, having regard to the evidence relied upon by the plaintiff, I make the order in paragraph 1 of the Notice of Motion filed on 25 March 2013. That order may be taken out forthwith.

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Decision last updated: 28 May 2013