SA Realty Company Pty Ltd v Burden-Smith - [2013] SADC 13

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
SA REALTY COMPANY PTY LTD v BURDEN-SMITH
[2013] SADC 13
Judgment of His Honour Judge Costello
18 February 2013
CONTRACTS
The plaintiff sought repayment of monies advanced to the deceased son of the defendant, the administrator of his estate. Defendant did not concede that monies advanced to her son were loans or that they had not been repaid. Held - monies advanced to the deceased were by way of loan and had not been repaid despite a call for repayment having been made - loans repayable at call - Defendant's claim for a set-off refused - Defendant liable to pay the plaintiff the sum of $123,379.25.
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; Byrne v Australian Airlines Ltd (1995) 185 CLR 410; Bunbury Foods P/L v National Bank of Australia (1983-1984) 153 CLR 491, considered.

SA REALTY COMPANY PTY LTD v BURDEN-SMITH
[2013] SADC 13
Introduction

In this action the plaintiff seeks payment from the defendant, in her capacity as administrator of the estate of Robert Leslie Burden-Smith, deceased, of the sum of $123,379.25 being monies allegedly advanced by the plaintiff to the late Mr Burden-Smith by way of loan.
The defendant acknowledges that these monies were advanced to her son by the plaintiff but does not concede that they were advanced by way of loan or that the monies have not been repaid.
For the reasons which follow I am satisfied the plaintiff entered into an oral agreement with Mr Burden-Smith whereby it loaned to him monies totalling $123,379.25 in a series of advances between December 2003 and July 2005 to assist him in a development of a property owned by Mr Burden-Smith in Pooraka. I am also satisfied that there was an implied term in their agreement that the monies would be repayable at call. The monies have not been paid after a demand for repayment was made. The plaintiff is therefore entitled to recover the sum of $123,379.25 from the defendant.
Background Facts
In or about 1999 Sasha Mitrovic (“Mitrovic”) and Robert Burden-Smith (“Burden-Smith”) met and became friends. Thereafter they saw each other regularly at the gymnasium and elsewhere. Over the next few years they commenced to discuss the possibility of undertaking property development together.
In May 2003 Burden-Smith purchased a property at 107 Pratt Avenue Pooraka.[1] By that time the conversation between Mitrovic and Burden-Smith concerning property development had crystallised to a point whereby they had decided to set up a “legal vehicle” to facilitate such a venture.
[1] Exihbit P1 Tender Book of Documents p 51.
They approached Mr Caracoussis who was at that time Mitrovic’s accountant (but who thereafter also became Burden-Smith’s accountant) to set up the appropriate legal structure for their joint venture into property development. On the advice of Mr Caracoussis, the plaintiff was incorporated on 9 July 2003.[2] The plaintiff was incorporated to act as trustee of two discretionary trusts, the Mitrovic Property Trust[3] and the Burden-Smith Property Trust.[4]
[2]    Exhibit P1 Tender Book of Documents p 1.
[3]    Exhibit P1 Tender Book of Documents pp 2-25.
[4]    Exhibit P1 Tender Book of Documents pp 26-49.
In October 2003 the plaintiff raised money to undertake the purchase of (and purchased) a property at 53 Dumfries Avenue Seaton (“Seaton”) in its capacity as trustee of the Mitrovic and Burden-Smith Trusts.
In or about October 2003 Burden-Smith needed money to further his development of Pooraka. It was agreed between him and Mitrovic that the plaintiff would advance monies to him for that purpose. Thereafter between December 2003 and July 2005 the plaintiff made a series of advances to or on behalf of Burden-Smith with respect to Pooraka. [5] There is no dispute that these advances, which total $123,379.25, were made and that they were made to him or on his behalf in relation to Pooraka. [6]
[5] Exhibit P1 Tender Book of Documents pp 61-71.
[6] The financial records supporting the making of these advances are variously recorded in Exhibit P1 pp 102-137 and pp 146-150.
In or about July 2005 Seaton was sold and an amount of $101,049.74 deposited into the plaintiff’s bank account. Shortly thereafter an amount of $92,775.90 was advanced to the mortgagee of Pooraka on behalf of Burden ‑Smith in order to discharge the Pooraka mortgage. [7]
[7] Exhibit P1 Tender Book of Documents pp 129-137.
In August 2005, Mitrovic gave a personal loan to Burden-Smith in the sum of $42,500.00 to be repaid at call. Unlike the earlier advances referred to this advance was recorded in writing.[8] There was no evidence as to whether this advance was made in respect to Pooraka or otherwise.
[8] Exhibit P1 Tender Book of Documents pp 167A-167Q.
After purchasing Pooraka, Burden-Smith had put in place arrangements to divide the land into three allotments. Attempts were then made to sell the land as a three allotment package or in single parcels but these attempts were unfruitful. Thereafter Burden-Smith arranged for dwellings to be erected on each allotment. These properties were then sold in August 2007.
Apart from Seaton, Mitrovic and Burden-Smith did not engage in any other joint property development. However, although Pooraka was Burden-Smith’s private development, Mitrovic did assist him with that development in a variety of ways including negotiating Council approvals and advertising the proposed sales.
In January 2009 Burden-Smith committed suicide. Up to this time neither the plaintiff (in relation to its advances) nor Mitrovic (in relation to his personal loan) had sought repayment of the monies.
Burden-Smith died intestate and on 10 June 2009 Letters of Administration of his estate were granted to his mother, the defendant. Shortly after his death Mitrovic approached the defendant and sought repayment of the advances made by both the plaintiff and by him personally. In October 2009 the defendant paid Mitrovic his personal loan in the sum of $42,500.00.
The Defence
In relation to the plaintiff’s claim the defendant initially denied liability for any amount and suggested that, if anything, Mitrovic may well owe Burden‑Smith money. Ultimately the defendant asserted that if there was any amount owing to the plaintiff, the defendant was entitled to set off against the plaintiff’s claim an amount of $66,292.00 being the amount currently held by the plaintiff on trust for Burden-Smith. In short, this would leave a balance owing from the defendant to the plaintiff of $57,083.00. Regardless, the defendant maintained her denial that the plaintiff was entitled to any monies.
Furthermore, initially the defendant did not admit the existence of any joint property development venture. Whilst at trial she ultimately accepted that the monies claimed by the plaintiff were advanced to her son she continued to deny liability upon the basis that:
·There was no written agreement evidencing that these monies were loaned;
·There was otherwise no evidence as to the proper characterisation of these advances; and
·If the monies were loaned to Burden-Smith they may have been repaid.
The Witnesses
The plaintiff called two witnesses, Mitrovic and Mr Caracoussis.
Mitrovic
Mitrovic told me that, although his initial relationship with Burden-Smith was casual or social, the two men gradually began to confer regularly on the topic of going into the business of property development together. To that end they consulted his then accountant, Mr Caracoussis who set up the plaintiff company as trustee for their respective personal property trusts.
He was aware that in May 2003 Burden-Smith purchased Pooraka as a private property development. Even so, he said that Burden-Smith enlisted his assistance at various stages of this project with things like Council documentation, preparing the land for division and sundry other matters.
In the same year they agreed to develop Seaton which the plaintiff purchased, after raising $224,000.00 from Perpetual Trustees Victoria Ltd. He said that it was understood that they would participate equally in this venture.
He said that after Seaton was sold they discussed how the profit from that sale was to be utilised. In the course of those discussions he said that Burden‑Smith was finding difficulty meeting the mortgage payments on Pooraka and asked him whether he would mind him using the surplus made on the sale of Seaton “to pay out Pooraka”.[9] He also identified other payments made by the plaintiff in respect of Pooraka which he understood and expected would either be repaid or taken into account in the event of a further development venture.[10]
[9] Transcript p 20.
[10] Transcript pp 25, 34.
He said that while the plaintiff was content to leave “till later” the timing of any repayment it was always understood that the monies would be repaid either after Pooraka was sold or, in the event of another project being commenced, when the final figures on that project were done.
In cross-examination he said that whereas his personal loan to Burden‑Smith was drawn up and made the subject of a written agreement, there was not the same need with money which was loaned to him from their “joint venture together”.[11]
[11] Transcript p 42.
Mr Caracoussis
Mr Caracoussis said that in July 2003 he discussed with both Mitrovic and Burden-Smith the matter of an appropriate legal structure to facilitate the purchase and development of Seaton. As a result he arranged for the incorporation of the plaintiff and the preparation of their Trust Deeds.
Thereafter he continued to act for both men as their accountant until Burden-Smith died in 2009. During that time he saw Burden-Smith to discuss his financial affairs perhaps four or five times per year.[12] He said that during that time he prepared a number of financial statements some of which included accounts where monies advanced to Burden-Smith were recorded as loans to Burden-Smith for Pooraka.[13]
[12] Transcript p 55.
[13] Transcript pp 54 and 55; Exhibit P1 - Tender Book of Documents pp 98 and 151.
Although most of the base documentation enabling him to prepare those accounts came from Mitrovic he never had any reason to doubt the accuracy or veracity of that information.
He also said that, with respect to the issue of the defendant’s set-off, unless and until the “loan monies” were properly received and distributed by the plaintiff, it would remain potentially liable to a penalty rate of tax of 46½% on the undistributed profits. In short, a simple set-off arrangement as between the parties would not relieve the plaintiff of a potential tax liability.
Ms Burden-Smith
Ms Burden-Smith gave evidence and tendered some documents, the latter of which comprised bank statements of Burden-Smith and other documents relevant to the development and sale of Pooraka.
Ms Burden-Smith said that these documents demonstrated that Burden‑Smith had funds from the sale of Pooraka to pay back any loans if the monies advanced to him were in fact loans. She also said that on receiving the documentation surrounding the Mitrovic loan she instructed her solicitors to pay Mitrovic back. Finally she agreed that she had all of her son’s financial documents and was therefore in a position to see whether any money had been repaid to the plaintiff.
I am satisfied that all three witnesses gave their evidence truthfully. In particular I accept, as accurate, Mitrovic’s evidence as to his conversations with Burden-Smith surrounding the request for and making of loans by the plaintiff to Burden-Smith.
Issues for Determination
Against this background the legal and factual issues which fall to be determined are:
1Did the plaintiff advance monies to Burden-Smith in relation to Pooraka?
2How are these advances to be legally characterised?
3If the advances were loans, did the parties enter into a contract with respect to them and if so on what terms? and
4If the advances are properly characterised as loans were they repaid by Burden-Smith to the plaintiff?
Advance of Monies
I am satisfied that, shortly after he purchased Pooraka, Burden-Smith approached Mitrovic to see whether the plaintiff would advance him monies from the funds raised to develop Seaton. I am also satisfied that Mitrovic agreed to monies being advanced by the plaintiff to Burden-Smith to assist him with both the Pooraka development generally and later to discharge the existing mortgage on Pooraka.
I am further satisfied that, consistent with that arrangement, a total of $123,379.25 was advanced to Burden-Smith between December 2003 and July 2005.
Legal Characterisation of Advances
The effect of the evidence of Mitrovic was that these advances were intended to be loans to Burden-Smith. All of the financial documentation supporting the advances refers to them being loans. Mr Caracoussis treated them as loans when compiling the accounting records as Burden-Smith’s accountant over a period of six to seven years.
I am satisfied that the advances were loans by the plaintiff to Burden-Smith.
The Existence of a Contract and its Terms
It is not easy to distil either the time at which any contract came into existence or indeed its terms. The arrangement between Mitrovic and Burden‑Smith was understandably informal, given the friendly relationship which existed between the men, a fact emphasised on more than one occasion by Mitrovic in his evidence.
Even in cases of such informality the Courts have been prepared to conclude that binding contracts have been entered into.
The relevant principles were succinctly summarised in Branir Pty Ltd vs Owston Nominees (No 2) Pty Ltd.[14]In the context of a commercial contract that was found to have arisen from the prior conduct and communications of the parties, Allsop J (Drummond and Mansfield JJ agreeing) said:[15]
[Contracts] can also arise when business people speak and act and order their affairs in a way without necessarily stopping for the formalities of dotting i’s and crossing t’s or where they think they have done so. Here, the i’s were not dotted and the t’s were not crossed … Sometimes this failure occurs because, having discussed the commercial essentials and having put in place necessary structural matters, the parties go about their commercial business on the clear basis of some manifested mutual assent, without ensuring the exhaustive completeness of documentation. In such circumstances … if it can be stated with confidence that by a certain point the parties mutually assented to a sufficiently clear regime which must, in the circumstances, have been intended to be binding, the court will recognise the existence of a contract. Sometimes this is said to be a process of inference or implication. For my part, I would see it as the inferring of a real intention expressed through, or to be found in, a body of conduct, including, sometimes, communications, even if it be the case that the parties did not consciously advert to, or discuss, some aspect of the relationship and say: “and we hereby agree to be bound” in this or that respect. The essential question in such cases is whether the parties’ conduct, including what was said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract.
[14] (2001) 117 FCR 424.
[15] (2001) 117 FCR 424 para 369.
In my view the parties’ conduct here bespeaks of an intention to be legally bound to the essential elements of a contract which elements included an advance of monies to Burden-Smith on the understanding that (as with the personal loan to Burden-Smith from Mitrovic) they were repayable at call.
I am also prepared to imply, as a term of this contract, that the monies were to be repayable at call being a term which was “necessary for the reasonable or effective operation” of an informal contract such as this.[16]
[16] Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 422.
Have the Loans been Repaid
The effect of the evidence of Mitrovic is that the loans were not repaid prior to Burden-Smith’s death. I accept his evidence. Furthermore there was nothing in the financial records of Burden-Smith to suggest otherwise. I am satisfied that the monies have not been repaid.
In a letter to the defendant’s solicitors of April 2009 the plaintiff’s solicitors called for repayment, albeit without nominating the precise amount to be repaid. A call having been made repayment must be made within a reasonable time.[17] As there has been no repayment since that time the plaintiff is otherwise entitled to succeed on its claim.
[17] Bunbury Foods P/L v National Bank of Australia Ltd (1983-1984) 153 CLR 491.
Set Off
In view of the potential tax ramifications for the plaintiff adverted to earlier, it is neither appropriate nor reasonable to permit the defendant to set-off her claim.
Conclusion
There will be judgment for the plaintiff against the defendant for the sum of $123,379.25. I will hear the parties regarding interest and costs.