Colys Investments Pty Ltd v Smith

[2007] NSWSC 1121

CITATION:	Colys Investments Pty Ltd v Smith [2007] NSWSC 1121
HEARING DATE(S):	05/10/07
JUDGMENT DATE :	5 October 2007
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
EX TEMPORE JUDGMENT DATE:	5 October 2007
DECISION:	Order setting aside statutory demand; Order that defendant pay plaintiff's costs
CATCHWORDS:	CORPORATIONS - winding up in insolvency - application for order setting aside statutory demand - whether genuine dispute as to existence of debt - debt said to arise from oral contract - conflicting versions of relevant conversation - subsequent evidence calling in question existence of contract - genuine dispute shown
LEGISLATION CITED:	Corporations Act 2001, ss.459G, 459H(1)(a)
CASES CITED:	Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Eyota Pty Ltd v Hanave (1994) 12 ACSR 785 Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 451
PARTIES:	Colys Investments Pty Ltd - Plaintiff Leslie John Smith - Defendant
FILE NUMBER(S):	SC 2835/07
COUNSEL:	Mr A.R. Gee - Plaintiff Mr W.A.J. Colbron, Solicitor - Defendant
SOLICITORS:	Hones La Hood - Plaintiff Colbron & Associates - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

FRIDAY 5 OCTOBER 2007

2835/07 COLYS INVESTMENTS PTY LTD v LESLIE JOHN SMITH

JUDGMENT

1 The plaintiff applies under s.459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 1 May 2007 served on it by the defendant.

2 The defendant is a property development company. Its directors are, or were at various times, Mr James Colys, his wife Mrs Marny Colys and their two sons, Mr Mark Colys and Mr Nicholas Colys. The defendant is the brother of Mrs Colys.

3 The alleged debt the subject of the statutory demand relates to services provided by the defendant in connection with a building project at Kiama. It is accepted on both sides that the defendant worked on the Kiama project.

4 The amount claimed in the statutory demand is $200,000. The alleged debt in that amount is described as follows:

“The lump sum of $200,000 as reconciled, agreed and acknowledged, on 27 January 2005, by the company as the sum then due and owing by the company to the creditor for his services as building site foreman and also as building site night-watchman at the Kiama Blue building project, Kiama NSW during the period 28 January 2003 to 27 January 2005 and agreed to be paid within the period of five weeks subsequent to 27 January 2005.”

5 The ground upon which the plaintiff relies in pursuing its application under s.459G is the ground specified in s.459H(1)(a), that is, that there is a genuine dispute as to the existence of the debt specified in the statutory demand. In this proceeding, therefore, I am not called upon to decide whether the plaintiff owes the defendant $200,000 as alleged. I am called upon to decide no more than whether there exists a genuine dispute as to the existence of the alleged debt described in the statutory demand.

6 The crucial question is whether the plaintiff has shown that there is a plausible basis for a contention that the alleged debt does not exist. In defining the test in that way, I am mindful of well-known cases such as Eyota Pty Ltd v Hanave (1994) 12 ACSR 785, Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 Re MorrisCatering (Aust) Pty Ltd (1993) 11 ACSR 601 and Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 451. As I have said before, these cases make it clear that the task faced by a company challenging a statutory demand on the genuine dispute ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found on the hearing of the s.459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor which, on rationale grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.

7 Having regard to the description of the alledged debt in the statutory demand, its source, in the defendant's view, is a reconciliation, agreement and acknowledgement giving rise to what is, in effect, a contractual account stated, with the relevant contract being one made on 27 January 2005. The defendant's position seems to be that a contract of that date was the culmination or ultimate outworking of promises or expectations about financial matters arising from an arrangement of 2002 under which the defendant and his wife were persuaded to move from Queensland to New South Wales. And there can be no real doubt on the evidence before me that the defendant did at that time move from Queensland to provide services to the plaintiff.

8 But while the pre-existing relationship provides a backdrop, the terms in which the alleged debt is described in the statutory demand make it perfectly clear that it is the alleged contract of 27 January 2005 alone that is put forward as the source of the contractual right to payment on which the statutory demand is based.

9 The alleged contract is said to have been oral. Evidence read on both sides shows that a relevant conversation took place at the defendant's home on or about the critical date. The conversation was between Mr James Colys and the defendant. According to Mr Colys, the following words set out in paragraph 4 of his affidavit of 21 May 2007 were spoken:

“During that conversation I said:
‘What is that you want from us and why are you giving us grief especially when you know at the moment that we are trying get [sic] money to carry on. All you do is give us grief.’
He said:
‘I haven’t got family anymore, your sons are arseholes, you lost your house and you are all going to go broke. I am leaving:
I said:
‘Why are you saying these things? What have we done to you?’
He said:
‘You are going to go down and I will take you down.’
I said:
‘Why do you want to do that after all we have done.’
He didn’t reply to that but after pausing said:
‘Alright I will stick around until the first stage is finished.’
I said:
‘I don’t know where we are going to get the money to do that.’
He said:
‘I will stick around until you find the money and finish stage one.’
I said:
‘Thank you Les that is all I want to hear.’”

10 The defendant accepts that words to this effect were spoken but says that further words were spoken as set out at paragraph 24 of his affidavit of 25 July 2007:

“Les Smith: ‘It is just like always I am being ripped off but this time I am going to take legal action.’
James Colys: ‘I do not want you to do that. The company has no money at this time, we are refinancing the loans and legal action will cause problems. I have got enough grief already. You only have to wait five weeks and you can get paid. We know that you are owed money. How much do you want, two hundred thousand, two forty thousand, two fifty thousand?’
Les Smith: ‘I will settle for $200,000.’
James Colys: ‘Okay. You will be paid in five weeks when the new loan happens. Thank you Les. You can stick around if you want, but you do not have to stay on site, there is not much happening for you.’”

11 In his 17 August 2007 affidavit at paragraph 5, Mr James Colys denies that the additional words deposed to by the defendant were spoken on the occasion in question. This is a confirmation of what is said at paragraph 13 of his affidavit of 21 May 2007:

“I deny that I ever had a conversation with the Defendant on 27 January 2005 (or any other date) in which I agreed that he would pay $200,000 (or any other sum) by me, my wife or the Company. I deny that there was ever any such agreement.”

12 The defendant's wife says that she was at the premises when the alleged conversation took place but apparently in a different part. She says that she did not hear all that was said but does quote words to the effect of those she says she overheard after voices had been raised. She deposes to words exactly the same in every detail as those appearing in her husband's affidavit. Both those affidavits were sworn some 18 months after the event. The wife's affidavit makes it clear that she had read her husband's affidavit before swearing her own.

13 Mr James Colys says that Mrs Smith was not present during the conversation, which took place in the backyard of the property. The defendant says that his uncle was present during the later part of the conversation. Mr James Colys says that the uncle arrived after the conversation had concluded. There is no evidence from the uncle.

14 Consistently with the principle identified by Heydon JA at para [25] of Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, regard may be had to subsequent events in deciding whether a contract was formed. It is therefore relevant and permissible to consider a letter of 28 February 2006 from Mr Mark Colys to the defendant:

“As stated in our conversations Wednesday 23rd February 2006 their [sic] seems to be confusion between what monies are owed to you. Since you are not interested in going through and checking the documents with mum, we can only assume you have trust in your sister, when she says all outstanding payments have been met.
As our conversation indicated this is not really about monies not paid but is about the knowledge you have passed on to us over the years you have worked for us. (In our conversation and using your words ‘how do I put a figure on this’).
Since our family is about family and not money to resolve this issue we have all agreed to pay you $200,000.00 as our gratitude for the knowledge you for the knowledge you have passed on to us and for your efforts over the years.
This money can only be realised at the end of ‘Kiama Blue’ if there is a profit. If no profit realised on the ‘Kiama Blue ‘ project you will have to be patient and wait until we have profit coming from one of our other Investor Projects. This maybe sooner rather than later.
I hope you have enough family trust in us to realise we are a family of our word and I hope Family matters can be resolved between brother and sister and we can move forward in some Direction.
Lots of work to do, ring me if you wish to discuss further.”

15 There are several points of note about this letter. First, the letter does refer to an agreement involving $200,000. It says, "We have all agreed to pay you $200,000". Second, however, who "we … all" are is not explained, but addition of the word "all" to “we” suggests that several persons had agreed to pay. Mr Mark Colys attempts in his affidavit to give evidence of who he was speaking for, but that cannot be determinative of anything. Third, the $200,000 referred to in the letter is expressed to be some kind of token of gratitude, calling in question the proposition that it was contractually due and owing. Fourth, the contemplated time of payment is inconsistent with the conversation alleged by the defendant. The words, “if there is a profit” indicate a contingency. Any expectation on the defendant's part in the terms recorded in this letter would, on the terms of the letter, be an expectation differing from that reflected in the statutory demand involving payment within five weeks from 27 January 2005 without any reference to a contingency concerning profitability of the project.

16 The defendant's first affidavit records a conversation between himself and Mr Mark Colys in February 2006:

“Mark Colys: ‘We know we owe you money. There is no money at this time. Let us work this out.’ ‘Why don’t you come back and work on site for say $80,000 per year plus expenses and we will pay you everything you are owed at the end of the job when we sell. It will take about nine to eleven months to finish Stage 2.’
Les Smith: ‘Mark you owe me $200,000 already, I came down here to start legal action, I did not bring tools or clothes. I am not living on promises any more. Put it in writing and I will talk to Wendy, I am not agreeing, and I don’t think she will agree’.
Mark Colys: ‘All I can do at the moment is give you a letter stating that you are owed $200,000 which you will be paid in nine to eleven months when we start selling.’
Les Smith: ‘Make it a legal letter or I will go straight to a solicitor. You have one chance at it.’”

17 Mr Mark Colys denies that any such conversation occurred.

18 The fact that the alleged agreement on which the defendant relies was oral and that there are before me conflicting statements about central and crucial elements of the relevant conversation means that there must follow a finding of genuine dispute as to the existence of the debt the subject of the statutory demand.

19 If, in an action at law for debt, the evidence were the evidence that is now before me, the situation would be one of fundamentally inconsistent versions given by interested persons, with the wife of one giving supporting evidence in terms suggestive of possible lack of independent recollection, and with no evidence being given by a person who may be able to give important evidence (I refer to the uncle). Obvious questions of credibility would arise in any such action at law and would have to be determined in order to decide what in fact was said. The significance of the letter of 28 February 2006 would also arise for consideration.

20 Another matter to which I must refer briefly consolidates the conclusion that this proceeding must be determined in the plaintiff’s favour. The crucial conversation, as deposed to by Mr James Colys, has him asking the defendant, "What is it that you want from us?" He refers in other places also to "we". The residue of the conversation alleged in the defendant's affidavit but denied by Mr James Colys has Mr Colys referring to "the company" without naming any company and saying that the unnamed company has no money and "We are refinancing the loans".

21 The defendant, clearly enough, has proceeded on the basis that the company referred to is the plaintiff and that Mr James Colys was speaking for the plaintiff, as the developer of the Kiama project, when he spoke the words the defendant attributes to him. But evidence from the plaintiff provides a cogent basis for a finding that a different company - Colmerc Projects, which also trades as Mercer Constructions - was the developer of the Kiama project and that payments the defendant did receive for work done by him at Kiama were payments by that different company. The defendant had worked for the plaintiff on earlier projects, but documents relevant to the Kiama development tend to indicate that it was not the plaintiff, but rather Colmerc, which retained him to work on that project. Those documents include time sheets, apparently signed by the defendant and recording hours worked by him. They also include payment claims submitted by the defendant himself. As I have said, the statutory demand, by contract, ties the alleged debt fairly and squarely to the plaintiff alone.

22 Finally, there is a question about the capacity of Mr James Colys or, rather, his authority to speak for the plaintiff. Search materials would suggest that he was not a director or secretary of the plaintiff in January 2005, although he had been a director previously and now seems to be a director again. The solicitor for the defendant submitted that it should be found that Mr James Colys was acting in effect in every capacity in which he was capable of acting and that, on the basis of a well-known role as "patriarch", he should be regarded as having spoken for the plaintiff. There is no warrant at this stage for any such course. Doubt about the authority of Mr James Colys is something that underlines the uncertainties that make up the dispute.

23 As I have said, it is not my task here to make any final determination of the rights and liabilities of the parties with respect to the alleged debt of $200,000. I have only to determine whether there is a genuine dispute as to its existence. On the several bases I have mentioned, I am satisfied that there is a dispute and that the dispute is genuine, with the result that my finding is that the plaintiff has discharged the onus of proof that lies upon it in this proceeding.

24 I therefore order that the statutory demand dated 1 May 2007 served on the plaintiff by the defendant be set aside.

[Counsel addressed on costs]

25 I order that the defendant pay the plaintiff's costs of the proceedings.

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