New South Wales Supreme Court CITATION : Micallef v Ofria [2000] NSWSC 750 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 4597 of 1997 HEARING DATE(S) : 2 March, 7 April, 29 June 2000 JUDGMENT DATE : 2 August 2000 Gerald Micallef (First Plaintiff) PARTIES : Normal Micallef (Second Plaintiff) Roland Ofria (First Defendant) Marlene Ofria (Second Defendant) JUDGMENT OF : Windeyer J at 1 LOWER COURT Supreme Court (Master) JURISDICTION : LOWER COURT FILE NUMBER(S) : LOWER COURT Acting Master Berecry JUDICIAL OFFICER : COUNSEL : Mr L. de Vere Tyndall (Plaintiffs) Mr R.W. Cameron (Defendants) SOLICITORS : John Burrell Solicitors (Plaintiffs) Tony Vella (Defendants) CATCHWORDS : APPEAL from decision of Master - enquiry by Master into accounts on order for sale of property - whether rents received by plaintiffs - whether allowance should be made for improvements carried out by the defendants - no evidence of cost of improvements or of increase in value of the property - appeal allowed in part CASES CITED : Avard v EH Harrison & Son Pty Ltd (unreported McLelland CJ in Eq 13 August 1989) Pollicino v Pollicino (unreported, Windeyer J 14 August 1997) DECISION : See paragraph 20 1 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J WEDNESDAY 2 AUGUST 2000 4597/97 Gerald Micallef & Normal Micallef v Roland Ofria & Marline Ofria JUDGMENT Outline 1 This is an appeal from a judgment of Acting Master Berecry which resulted in a certificate under which he found that the defendants owed the plaintiffs $24,481.99. The certificate is dated 22 October 1999. 2 The proceedings between the plaintiffs, Mr and Mrs Micallef and the defendants, Mr and Mrs Ofria, related to premises 431 Gardiners Rd Mascot. Mr and Mrs Micallef owned a one half interest in those premises as tenants in common with Mr and Mrs Ofria as to the other half interest. It was an investment property. 3 On 4 December 1997 an order was made by consent for sale of the property and for an account to be taken of the income, expenditure and transactions concerning the property. There was no order for a Master to conduct an enquiry on the account but it was obviously assumed that it would happen and in fact it did. It was that account which was the subject of the certificate in question. One of the orders which was made was that the defendants pay to the plaintiffs the amount if any found due to them on the taking of the account together with interest thereon. As far as I can ascertain from the file, judgment has not been entered and it is not clear how this was to be done without some further consideration. The learned Acting Master did not consider the question of interest and he was not directed to enter judgment on his certificate. I have expressed the view before that in matters such as this it is more appropriate to bring the matters back before a judge on motion for further consideration and variation of the Master's certificate rather than by appeal. There is a significant difference between a Master's determination of an enquiry ordered by the judge as part of proceedings as delegate of a judge, and a decision of a Master exercising the powers of a court under jurisdiction given pursuant to the rules where an appeal is an appropriate procedure. However this matter was discussed by McLelland CJ in Equity in Avard v EH Harrison and Son Pty Ltd (unreported, 13 August 1989) and I expressed my views on this in Pollicino v Pollicino (unreported, Windeyer J, 14 August 1997). Appeal 4 The appeal concerns two parts of the judgment which gave rise to the certificate. The first related to rent received from the property and ordinary outgoings on the property, the Acting Master dividing this part of the enquiry into three periods, namely 27 Jan 1986 to 31 May 1987; 1 June 1987 to 1 July 1990; and 2 July 1990 to June 1998. The appeal relates to the second period only. The acting Master found in relation to that period that the defendants owed to the plaintiffs $30,222. The second complaint about the judgment giving rise to the appeal is that the Master made no allowance for the costs of renovation and maintenance which the defendants claimed the first defendant had carried out on the property. It is necessary to deal with these matters in turn. Rent Claim 5 The building in question was divided into two parts. For a significant part of this period the downstairs of the premises was occupied by the first defendant. The agreed rent for those premises during the period of occupancy was $150 per week; thus it was appropriate to charge that amount against the defendants for rent which should have been received from those premises, and in so far as it was not paid, to allow a surcharge of the unpaid amounts by the defendants. The upstairs part was let for part of the period to a tenant named Vassilis. The defendants say the First Plaintiff collected rent from Vassilis for part of the period and that they did not receive rent for those weeks. 6 The grounds of appeal on this part of the case are: 1) That the Master erred in law in that (a) he should have found on the facts that the plaintiffs collected rent themselves rather than found the defendants collected the rent - I interpolate here that I cannot comprehend how that could be an error in law; (b) he wrongfully excluded certain evidence which would have supported the plaintiffs' case, thereby (i) denying natural justice to the defendants - (no argument was addressed to this) and (ii) leading to an erroneous assumption that tender of a cheque for $20 409.46 was for rent when the defendants said it was to repay a loan. 2) That the Master made erroneous findings of fact through misunderstanding of evidence of witnesses as to payment of rent by Vassilis to the First Plaintiff and misunderstanding the effect of Exhibit B which it is said amounted to an admission by the First Plaintiff of receipt of rent; and failed to make allowance for the period when the downstairs premises were vacant. 7 It is clear that this was a difficult matter. The enquiry proceeded over seven days. The parties are locked into a state of war and have been involved in other litigation. Mrs Micallef is the sister of Mr Ofria but there is no happy relationship between the two families. The taking of accounts as required by the consent order is necessarily a technical procedure and unless there is some co-operation between the parties, which was quite unlikely in this case, can be time consuming and difficult. The first defendant was the accounting party. His account has been referred to as RO1 so far as receipts are concerned. It appears from the decision of the Acting Master that some vouching was done out of court. What was agreed and which items were not agreed is not apparent. The certificate of the Acting Master does not comply with the rules of court as it does not indicate the contested items and the decision on those items. There is little point in worrying about that now, but it must be borne in mind that it seems that Mr Ofria was made the accounting party because the agreement was that he would collect the rents for the premises and account for them to the co-owners after deduction of expenses. Thus if the plaintiffs alleged, by way of surcharge that rents were collected or should have been collected and not accounted for they would bear the onus on this and if they challenge payments claimed to have been made then the accounting party would have the burden of proof on those payments as to whether they were made or should have been made. 8 It was necessary for the Acting Master to make an assessment of the evidence of the parties and witnesses in view of the absence of primary accounting documents. He was not impressed with the evidence of either Mr Micallef or Mr Ofria, considering much of the evidence of Mr Micallef to be implausible and some of it inconsistent, and considering much of the evidence of Mr Ofria to be unreliable in relation to collection of rent from Mr Vassilis after January 1989. He said that where there was a conflict of evidence in the absence of corroboration he was sceptical of the evidence of Mr Ofria. The Acting Master accepted the evidence of the non-family witnesses. 9 The Acting Master found that the agreement between the parties was that the first defendant would collect the rent and pay the outgoings, then divide the rent between himself and the first defendant. For a time effect was given to this arrangement by the defendants retaining the rent for one week and paying the plaintiffs the rent for the next week. At the commencement of the rent period in question here, the first defendant was in occupation of the downstairs premises at an agreed rent of $150 per week. The Master charged that $150 against the defendants for the full period. The defendants say that the downstairs premises were unoccupied for a part of this period. The upstairs premises were let to Vassilis for $260 per week up to 3 March 1988 and $314.60 per week from 4 March 1988. No rent was received between 29 April 1989 until 31 August 1989. Vassilis was sued for rent but no recovery was made. On 1 September 1989 the upstairs was again let at a rent of $380 per week. Rent of Downstairs Shop 26/6/89 to 2/3/90 10 Annexure C (which was prepared by Mr Ofria) to the affidavit of the First Plaintiff sworn 24 October 1997 indicates that no rents were paid for the shop for the period from 29 February 1989 to 2 March 1990. That more or less coincides with the account of the defendants in RO1. In other words it is claimed the occupation of downstairs by the video business of Mr Ofria had ceased by 29 February 1989. However, the Master in paragraph 32 of his judgment stated that it did not appear to be disputed that the First Defendant occupied downstairs until 1 March 1990. The evidence was clear that Mr Ofria took over the downstairs premises for his own use and over a period of time did some work on those premises, which might have made them better for his use, or perhaps made them better as a letting proposition. While it is clear that the plaintiffs' knew work was being done there is no reason to find that they consented to the premises remaining non-rent producing for any period. The decision of the Acting Master on the downstairs premises should be upheld. Exhibit B, which was relied upon by the defendants/appellants in respect of the upstairs rent is contrary to their claim that rent should not have been paid for the downstairs shop by Mr Ofria or his business during the period in question. Rent of Upstairs Premises 11 Most of the argument, at least on appeal, was devoted to the upstairs premises or "Top Shop", sometimes called a club. The Acting Master having stated that he accepted the evidence of the witnesses other than the parties was not prepared to find that Mr Micallef collected any rents from Mr Vassilis. He stated in paragraph 17 that the evidence of Mr Ofria was unreliable as to collection of rent from Vassilis after January 1989, that he would have been aware of any default by Vassilis and the extent of default, and that when proceedings were commenced to recover unpaid rent they were commenced in the name of Mr Ofria only, not in the name of all the owners. The Acting Master felt that was inconsistent with the evidence of Mr Ofria. I am not certain that it is correct. The unchallenged evidence was that Mr Micallef took a substantial part in dealings with Vassilis when he went into default including preparation of a notice to quit, and that he, Micallef, calculated the unpaid amount for what recovery action was taken. 12 RO1 in items from 141 to 212 showed Mr Micallef as receiving the rent paid by Vassilis of $260.00 per week for the period from 1 June 1987 to 29 January 1988. That figure would amount to $8,840.00. It also showed him as receiving rent for those premises from 1 July 1988 to 17 February 1989 at $314.00 per week which would be thirty four weeks amounting to a total of $10,676.00. RO1 also shows that no rent was received for the upstairs premises from 28 April 1989 to 1 September 1989, which at least consistent with the claim in the Local Court for unpaid rent of 15.7 weeks. It is also consistent with the accounts as determined by the Acting Master. 13 In the light of this it is necessary to consider the evidence of the non-party witnesses. 14 Mr Neofytou in an affidavit stated that he had heard a conversation between Mr Vassilis and Mr Ofria about the rent. Later he had heard Mr Vassilis ask Mr Ofria to pay the rent for him and he would pay it back that night, and he said that Ofria had said that he would lend him the money and that he could then pay the rent. Mr Ofria then pulled out some cash from his pocket and gave it to Mr Vassilis who handed it to Mr Micallef. Cross-examination brought no change to this. Mr Confos gave evidence of conversations with Mr Vassilis about the requirement to pay rent to Mr Micallef. Vassilis had asked him to lend money so that he could pay rent. He had done so on two occasions and had seen Vassilis hand money to Mr Micallef thereafter. Mr Mastaloudis said much the same thing. In cross-examination he said that he had regularly seen Mr Micallef call on the upstairs premises in 1987 that he saw him taking money from Mr Vassilis, that he had often seen Mr Micallef talk to Mr Vassilis, and that he came for the rent and said so. He said there were often arguments about this because Mr Vassilis could not afford to pay the rent and asked card players to lend it to him. Mr Haralambos said that he was a regular visitor to the club, he knew Vassilis, and he had seen him give money to Mr Micallef on a number of occasions. He did not know what it was for. 15 Having regard to this evidence and the fact that the Learned Acting Master accepted these witnesses as truthful it is necessary to consider paragraphs 36 and 37 of the Master's judgment. There he said that at the highest this evidence meant that the witnesses had seen Mr Micallef in the coffee shop and that he had appeared to get money from Vassilis. One of them said he did not know how much or the purpose and one of them was vague. The Master therefore felt that there were difficulties in making any decision about this and to some extent it seems he was reinforced in his view because when proceedings were taken against Vassilis for recovery of rent they were taken only in the name of Mr Ofria, not in the names of the owners. It is to be remembered that Mr Micallef gave evidence that he had not been upstairs and that he did not know Mr Vassilis. It is quite apparent that evidence was false. If that is false and the independent witnesses said that they had seen Mr Vassilis give money to Mr Micallef, then it appears that the only conclusion which it was possible to draw was that those moneys were given for rent and that Mr Micallef did not want to admit that he had any dealings whatsoever with Vassilis. Thus it seems to me that this conclusion of fact is one which was not open to the Acting Master on the evidence and it was necessary for him to find that Micallef received some payments. In addition to this, Exhibit B in the proceedings, which was a document the Acting Master found was in the handwriting of Mr Micallef although he denied it, on its face shows that rents were received from the top shop during some of this period. The period in question is three years and one month, being about one hundred and sixty weeks. According to this document rent was not paid for the top shop for sixty five weeks, although from that would be deducted the 15.7 weeks for which Vassilis was sued. The Master took this into account, although Exhibit B does not seem to do so. If the 15.7 weeks is deducted from the 65 weeks leaving a period unaccounted of about 49 weeks that at least is consistent with the period before 1 September 1989 which was also for 49 weeks during which Kambouro was tenant of the upstairs premises. 16 None of this can be reconciled exactly with annexure C to which I have referred and the $28,594 referred to there, although that figure appeared to show the plaintiffs' share of profits and not an amount due to the plaintiffs. In the event it does not show why a sum of $20,409 was paid by Mr Ofria to Mr Micallef. In District Court proceedings between the plaintiffs in this action and Mr Ofria for recovery of moneys claimed to have been lent by the plaintiffs to him Acting Judge Susan Gibb found that a payment of $20,409 on 12 June 1990 by Mr Ofria to the plaintiffs was not made in repayment of a loan, but was a payment for rent. Of that amount, $20,000 was repaid to Mr Ofria a few days later. Neither party claimed that any estoppel arose as a result of Her Honour's judgment. For that reason I do not consider it further. The notice of appeal so far as it went to wrongful rejection of evidence really related to this issue but neither party wished me to deal with it further. 17 The onus was on the plaintiffs to show that the defendants received rents for the items against which the defendants showed those rents were paid to the plaintiffs. They have not discharged that onus. However, the defendants say that rents for the periods in question were paid by the tenant to the plaintiffs. The defendants bear the onus on this. There is evidence that the plaintiffs received some rent from Mr Vassilis. Strict proof by items is not possible, but the matter still has to be decided. It must be determined upon the balance of probabilities. The plaintiffs denied receiving rent from Vassilis. The evidence of the independent witnesses, which I found the Master should have accepted, was to the contrary. The evidence establishes that Mr Micallef was, to say the least, keen to secure rent. Exhibit B provides some support that on the balance of probabilities Micallef received 35 payments of $260 totalling $9,100 shown on the account between items 141 and 211 and 34 payments of $314.60 totalling $10,696.40 shown between items 255 and 307 on RO1. The total of the two figures if $19,796.40. 18 The Master found that the net rent received (or payable by the defendants) totalled $61,262.94; that the plaintiffs was entitled to $30,631.47 of which they had received $409.46 leaving a balance of $30,222.01. As I have found that they received a further figure of $19,796.40 the balance due for the second period should be $10,425.61. When that is brought into account the revised figures as shown by the judgment are as follows: Payable by defendants Period 1 $ 262.36 Period 2 $10,425.61 Period 3 Nil _________ $10,687.97 Payable by the plaintiffs to the defendants for period 3 $ 6,002.39 Balance due by defendants to plaintiffs $ 4,685.58 Renovations 19 The learned Acting Master found that while work in the nature of improvements was done to the property there was no evidence of the cost to the defendants of those improvements and no evidence of any increased value of the property attributed to the improvements. While I think it clear enough that a co-owner of a property which is purchased as an income producing property is entitled to be credited with payments made for maintenance (or improvements if agreed to) for the purpose of obtaining or increasing the income produced from the property, in the absence of evidence of those payments no allowance can be made. It was accepted that the defendants could not be paid for the time Mr Ofria spent on working on the property himself. It is also clear that improvements carried out by a co-owner which bring about an increased sale price upon sale can be brought to the credit of the co-owner by way of allowance for the improved value on sale but there was no evidence of this. On this aspect the decision of the Acting Master cannot be disturbed albeit that it was based more on rights between co-owners than on rights under what was really a partnership in respect of a particular property. Conclusion 20 The appeal should be allowed. The Certificate of the Master should be set aside. In lieu thereof there should be a certificate that the sum due to the plaintiffs is $4,685.58. I will hear submissions on interest and costs. 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