Smith v Pyramid Building Society (in liq)

[2000] VSC 421

SUPREME COURT OF VICTORIA
COMMERCIAL AND EQUITY DIVISION	Not Restricted

CORPORATIONS LIST

No. 4304 of 2000

In the Matter of Pyramid Building Society Pty Ltd (in liquidation)

BRIAN SMITH (also known as Barry L. Sykes)	Appellant
V
PYRAMID BUILDING SOCIETY (in liquidation) and ANTHONY GEORGE HODGSON	Respondents

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JUDGE:	Mandie J
WHERE HELD:	Melbourne
DATE OF HEARING:	6 October 2000
DATE OF JUDGMENT:	6 October; revised 17 October 2000
CASE MAY BE CITED AS:	Smith v Pyramid Building Society (in liq)
MEDIUM NEUTRAL CITATION:	[2000] VSC 421

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Corporations – appeal allowed from liquidator’s refusal to admit proof of debt – whether any other person entitled to moneys standing to the credit of appellant in false name.

Practice and Procedure – costs - whether unsuccessful liquidator should pay appellant’s costs.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr J.L. Evans	McIntyre and Statton
For the Defendant	Mr M. Connock	Madgwicks Lawyers
For ASIC	Mr J. Munro	ASIC
For Mrs H.C. Willis	No appearance

HIS HONOUR:

1. By notice of appeal dated 14 February 2000, Brian Smith, also known as Barry L. Sykes, appeals against the rejection by the liquidator of Pyramid Building Society, of his proof of debt or claim made 3 August 1999, and the revocation by the liquidator of Pyramid Building Society of a previous decision to admit part of that claim as set out in the liquidator's notice dated 27 January 2000.

1. The appeal is brought pursuant to s.538 of the Companies (Victoria) Code, (that appears to be common ground). Section 120 of the Building Societies Act 1986, provided that Parts X and XI of the Companies (Victoria) Code apply with such modifications as are necessary to and in relation to building societies.

1. Section 121(2) provided that: "The winding up of a building society voluntarily or by the Supreme Court, may be made in the same manner and circumstances as a company may be wound up under Part XII of the Companies (Victoria) Code". At the last minute a question has been mooted as to whether, because s.538 was in Part XIV of the Companies (Victoria) Code, there is a right of appeal by the appellant here against the refusal - the rejection of the proof of debt by the liquidator. Because the point is not formally pressed as against the appellant, I do not regard it as a matter that I should investigate further. I think it extremely unlikely that there was no right of appeal from the decision of a liquidator of a building society, and I am content to conclude for the purposes of this proceeding, that the relevant sections of the Building Societies Act should be read in a way which incorporates, by implication if necessary, the right of appeal contained in s.538 of the Companies (Victoria) Code.

1. The proof of debt which is concerned in this case, relates to money standing to the credit of Barry L. Sykes in certain accounts with the Pyramid Building Society.  By an affidavit sworn 17 March 2000, Mr Smith deposed as follows as to investments made in the name of Sykes:

(1)On 2 June 1987 he purchased 10,000 non-withdrawable investment shares (NWIS) for $10,000.

(2)On 15 July 1988 he purchased a further 10,000 NWIS for $20,000.

(3)In March 1989 he redeemed $25,500 of his total investment, leaving 4500 NWIS unredeemed.  (i.e. $4500).

(4)On 8 May 1989 he purchased 25,000 NWIS for $25,000.

(5)He also had money in a deposit account with Pyramid Building Society, the balance of which was, as at 24 June 1990, $6876.69, and in respect of which, since the liquidation, he received a dividend of $1719.17.

1. Mr Smith further deposed that the liquidator had admitted him, for dividend purposes, in the sum of $7495 in relation to the deposit account balance including interest.  He deposed that in relation to the NWIS he had claimed $33,740, being $29,500 plus interest.  That proof of debt was rejected. 

1. Mr Smith gave no explanation for his using the name Sykes in his dealings with Pyramid Building Society, other than that he had also used it in some other transaction.  At least that is all he said in his affidavit.  It is not disputed that Mr Smith is Mr Sykes.

1. It appears from Exhibit BLS11 to Mr Smith's affidavit - a copy passbook- that the sum of $25,000 invested in NWIS on 8 May 1999 was probably withdrawn from his deposit account on that date.  When it was deposited in the deposit account does not appear from that exhibit.

1. The liquidator's rejection of Mr Smith's claim for $41,235 comprising NWIS of $33,740 and the deposit account of $7495, was made on a number of grounds, including that he was not satisfied as to the beneficial ownership of the funds, and the liquidator specifically mentioned two parties who might have such an interest - namely Kardinia Produce Pty Ltd and Mrs Willis.  Mr Smith's subsequent affidavit made no reference to those parties and did not disclose to the court the source of the funds invested by him, notwithstanding the liquidator's grounds of objection.

1. By interpleader summons dated 24 August 2000 addressed to Mr Smith, ASIC, the liquidator of Kardinia Produce Pty Ltd and Mrs H.C. Willis, the liquidator sought an order directing to whom the money in dispute should be delivered.  This application was supported by an affidavit of Mr Meredith - the liquidator jointly with Mr Hodgson, the named second Respondent, the first respondent being Pyramid Building Society (in liquidation).

1. Mr Meredith deposed that dividends totalling $2998 had been paid to Mr Smith in respect of the deposit account.  Mr Meredith exhibited a number of documents received from the solicitors for Mr Smith in 1997 and 1998, including a statement of Smith.  Mr Smith's statement says that he was involved in a wholesale fruit and vegetable business in Geelong, known as Kardinia Produce;  that he had insured the life of "my partners";  that a partner, Graeme Willis died in 1979 and the business closed down in 1980.  Mr Smith's statement goes on to say that he received approximately $80,000 from this life insurance - about half of which he gave to Mrs Willis;  $10,000 of which he used to clear business debts, and "the rest" went into the Pyramid account. 

1. It may be deduced from that information that Mr Smith retained about $30,000 of the insurance money.  Mr Smith stated that he invested in the name of Sykes "to try and avoid problems from the widow and her family".  A letter and attachments from Zurich Australia Limited to Mr Smith's solicitors, dated 9 April 1998, discloses that by a claim form dated 17 November 1980, Kardinia Produce Pty Ltd claimed $79,885.73 under the life insurance policy as "trustee", in relation to the death of the assured.  The claim form bears the common seal of Kardinia Produce Pty Ltd and the signatures of Brian L. Smith as secretary, and Brendan J. Smith as director.  The form is annotated as passed for payment on 26 November 1980.  Another copy letter suggests that the pay-out was $89,864.51.  The balance sheet of Kardinia Produce Pty Ltd, as at 30 June 1980, signed by Mr Smith, shows a net deficiency of $35,480.32. 

1. On 26 March 1981, the company was ordered to be wound up by this court on a creditor's petition, and Mr D.R. Oldfield was appointed liquidator.  The liquidator's statement of affairs shows an estimated deficiency of $265,417.  The company was deregistered on 28 June 1985.  The former liquidator was contacted but had no relevant recollection.

1. In August 2000, Mrs Willis spoke by telephone with a solicitor for the liquidators after receiving a letter from them and said that "she did not have any claim to the insurance proceeds on the life of her deceased husband, having resolved matters between her and Mr Smith some years ago".  The inter-pleader summons was thereafter duly served upon all parties concerned, but the only additional appearance was notified by ASIC.

1. Mr Smith has now filed an affidavit sworn 26 September 2000 in which he deposes that the insurance proceeds retained by him were approximately $30,000 which he obtained by depositing a cheque drawn by Kardinia Produce Pty Ltd, payable to Barry L. Sykes in an account with Barwon Building Society, later taken over by Pyramid Building Society.  I would infer that this cheque was drawn and deposited between about December 1980 and the date of the winding up in March 1981.  That is, of course, more than six years prior to the investments with Pyramid Building Society referred to in Mr Smith's first affidavit.

1. Mr Smith deposes that between 1981 and 1987 he paid many other sums into the Barry L. Sykes account, which fluctuated from as much as $70,000 to as little as $5000. He also deposes to other transactions utilising funds from that account in 1985 and 1986.  He was not cross-examined, and certain serious allegations have thus not been put to him.

1. Documentary evidence by way of photocopy print-outs of a number of accounts in the name of Barry L. Sykes have been provided by the liquidators.  Account number 017.0040088 was opened on 12 May 1981.  The available records show a balance of $330.75 on 1 July 1982.  There was no amount over $2000 in the account until 1985.  The largest credit was some $13,000-odd in 1986.  Account number 017.20048 was opened on 7 May 1982, but there was no record produced prior to the balance of $36,000-odd recorded in July 1982.  Nor does there appear to be a record explaining the reduction in the balance of $47,827.11 as at 18 March 1985, to $123.70 as at 31 May 1985.  This account may perhaps have received the insurance moneys.

1. Account number 016.0019216 was opened in January 1987 with a deposit of $20,383.48 and closed with a nil balance on 2 June 1987, after two withdrawals.  One withdrawal of about $10,000 went to NWIS, the other withdrawal of $12,000-odd went into the next account opened.  That account, number 016.0019928 was opened on 2 June 1987, and had a balance of $1200-odd in July 1987.  It was from this account which also fluctuated considerably, that various NWIS were purchased.  This is the deposit account involved in this proceeding.  There is not, I think, any link on the balance of probabilities between what was withdrawn from account number 017.20048 and the two other later accounts.

1. It may be that Kardinia Produce Pty Ltd once had a claim against Mr Sykes for an account or damages, or even a proprietary remedy for breach of trust.  I will assume that a tracing remedy would be  available, but the question here is whether ASIC, as the successor to the company, can as a result demonstrate on the evidence that the company had any proprietary interest in the moneys ultimately standing  in the name of Sykes, and prima facie to which Mr Smith is entitled.  In my opinion the evidence is insufficient to establish such an interest, whether by tracing or otherwise.  It is not possible, in my view, to satisfactorily connect the $30,000 paid into a Barwon Building Society account in 1981 with the funds in or deposited in Pyramid Building Society accounts in the period 1987 to 1989 on the whole of the evidence now before the court.

1. There is no point in having this money paid into court for further litigation.  This was the opportunity for the parties to contest Mr Smith's claims, and in my view they have not succeeded.  Mr Smith is entitled to the money at law, and no equitable interest in the account balances has been established against him.  Accordingly, the appeal is allowed, the proof of debt is admitted in full.  On the inter-pleader summons, I order that the moneys payable upon the admission of the proof of debt be paid to Mr Brian L. Smith.

[After Submissions on Costs]

1. Normally in a case like this the costs should follow the event.  The liquidators have rejected the proof of debt and the appeal against that rejection has been successful, but I think there are some special circumstances in this case which lead to a conclusion that a different order should be made.

1. It seems to me that the appellant brought all of this trouble on his own head by his conduct both prior to the putting in of the proof of debt and the original transaction and by his conduct thereafter when dealing with the liquidator, but the starting point is that he invested moneys in a false name and what the precise motive for that is we do not know.  He has gone on oath to say that it was so that he could avoid further trouble from the widow and that suggests a lack of probity to me in a situation where the company of which he was a director, applied at his instigation for insurance moneys as a trustee and also had substantial liabilities and then it seems that he pocketed a substantial amount of those insurance moneys for himself.

1. Of course there are other possible explanations but when one reads the whole of the material put in by Mr Smith one is left with a sense of unease.  Of course he has denied, although in a nebulous fashion, that there was any income tax aspect to his conduct, and as he has not been cross-examined, adverse inferences cannot easily be drawn, but the fact that he invested in a false name really brought this trouble initially on his head. 

1. And then it seems to me in his dealing with the liquidator he and his solicitors on his behalf were less than cooperative.  Some documents were provided but a fairly intransigent attitude was taken when further information was sought.  It seems that possibly misleading statements were made to the liquidator and other statements were made which perhaps entitled the liquidator to form, and reasonably form the view, that the question of the insurance proceeds needed to be further investigated. 

1. In addition to that, the material that Mr Smith put before the court was, it seems to me, inadequate, and really the whole story only came out after all the affidavits were in to the extent that the whole story has come out at all.

1. I think that the liquidator has acted reasonably and properly in the light of all those circumstances in performing his duty to the creditors.  I do not see why the creditors as a body should be unduly penalised as a result of the conduct and transactions of Mr Smith which have brought about this whole piece of litigation.

1. In those circumstances, I think that the appropriate order is firstly, that the costs, including reserved costs of the liquidator, be costs in the winding up.  To that extent the company will have to bear the costs of the litigation, but I think there should be no order as to the appellant's costs.  He should bear his own costs and to the extent that the dividend which will now be paid to him exceeds those costs he will receive some return, but I do not know what the dividend is and I do not take its size into account.

1. So the formal orders will be as I have already pronounced, and the order as to costs will be that the costs, including reserved costs of the liquidator be costs in the winding up, and I expressly order that there be no order as to the appellant's costs, it being the intention that he should bear his own costs.

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