Heys v Gold Ribbon Corporate Services Pty Ltd
[2000] TASSC 17
•14 March 2000
[2000] TASSC 17
CITATION: Heys v Gold Ribbon Corporate Services Pty Ltd [2000] TASSC 17
PARTIES: HEYS, Hedde
HEYS, Cornelia
v
GOLD RIBBON CORPORATE SERVICES PTY LTD ACN 076 354 348
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: Original
FILE NO/S: 190/1999
DELIVERED ON: 14 March 2000
DELIVERED AT: Hobart
HEARING DATES: 2 March 2000
JUDGMENT OF: The Master
CATCHWORDS:
Procedure - Summary judgment.
Aust Dig Procedure [67]
Contract - Whether clause void for uncertainty.
Head v Kelk (1963) 63 SR(NSW) 340; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, applied.
Bailes v Modern Amusements Pty Ltd [1964] VR 436; Argyll Park Thoroughbreds Pty Ltd v Glen Pacific Pty Ltd (1993) 11 ACSR 1; Universal Greening Pty Ltd v Sabine (1999) 17 ACLC 880, considered.
Aust Dig Contracts [18]
REPRESENTATION:
Counsel:
Plaintiffs: K J Stanton
Defendant: M J Brett
Solicitors:
Plaintiffs: Shields Heritage
Defendant: Archer Bushby
Judgment Number: [2000] TASSC 17
Number of Paragraphs: 19
Serial No 17/2000
File No 190/1999
HEDDE HEYS, CORNELIA HEYS v
GOLD RIBBON CORPORATE SERVICES PTY LTD ACN 076 354 348
REASONS FOR JUDGMENT THE MASTER
14 March 2000
The proceedings
By a writ filed 20 October 1999, the plaintiffs claim from the defendant, the return of the sum of $125,000, being moneys which they invested in the defendant company; damages for being kept out of their funds and interest, pursuant to the Supreme Court Civil Procedure Act 1932. Following service of the writ and statement of claim, an appearance was entered on 22 November 1999. By application filed 21 January 2000, the plaintiffs have applied for summary judgment.
The Facts
On 8 August 1997, the first named plaintiff Mr Hedde Heys met with Mr Garry Howes. Mr Howes was and is a director of the defendant company Gold Ribbon Corporate Services Pty Ltd ("the company"). As a result of the meeting, Mr Heys agreed to invest the sum of $125,000 in the company. Mr Howes arranged for his secretary to type a letter which was in the following terms:
" Hedde Heys and Cornelia Heys
as Trustee for the
Heys Family Holdings
64 Elphin RoadLAUNCESTON TAS 7250
8 August 1997
Contract Funding Services Australia Pty Ltd
ACN 076 354 348
We, the above named make application for 10,000 fully paid up $1.00 shares in the company and enclose our cheque for $125,000 being $10,000 for shares and a loan to the company for $115,000.
Received the sum of $125,000
G R Howes & CO
by way of cheque dated 12/8/97"
Subsequent to 8 August 1997, the company changed its name to Gold Ribbon Corporate Services Pty Ltd from Contract Funding Services Australia Pty Ltd.
The letter and a cheque given to Mr Howes was photocopied onto the same page and Mr Howes stamped the photocopy "Garry Raymond Howes LLB Barrister & Solicitor Hobart" and endorsed his signature above the stamp. The photocopy signed and stamped by Mr Howes was then handed to Mr Heys. The accompanying cheque was for $125,000, to be drawn on the account of "H & C Heys", the plaintiffs, and was made payable to G R Howes & Co. It was postdated "12/8/97". It is not disclosed why the cheque accompanying the letter was made out "G & R Howes & Co" but, in any event, the defendant does not suggest that the whole sum of $125,000 was not paid over to it by Mr Howes.
The letter was subsequently altered by Mr Howes to read:
"We, the above named make application for 5,000 fully paid up $1.00 shares in the company and enclose our cheque for $125,000 being $5,000 for shares and a loan to the company for $120,000."
Mr Howes gave evidence that these alterations were approved by Mr Heys, although this is not admitted. Mr Howes said that he made the alterations because the verbal agreement which led to the production of the letter was that the shares being purchased would represent 10 per cent of the entire share holding in the company and that at the time he made the alteration, he believed that the total shares issued in the company numbered 5,000.
Mr Howes subsequently discovered that there were only 100 issued shares in the company, but there is no evidence of this information being communicated to either of the plaintiffs. The evidence of Mr Howes was that 10 per cent of the shares in the company, namely 10 shares, were transferred to the company Satwant Holdings Pty Ltd to be held by that company on trust for the plaintiffs.
On 15 July 1999, the plaintiffs' solicitors wrote to the company in the following terms:
"We act for Mr and Mrs Hedde Heys. Our clients paid Mr G R Howes (a Director of Gold Ribbon Corporate Services Pty Ltd) the sum of $125,000.00 by cheque dated the 12th August, 1997 being the purchase price for 10,000 fully paid $1.00 shares in Gold Ribbon Corporate Services Pty Ltd and a short term loan to that Company of $115,000.00. No shares have been transferred to our client and the loan remains outstanding.
We demand repayment within 14 days of the date of this letter of the total sum of $125,000.00 together with damages in the nature of interest for loss of use of the money:-
(a)As per the attached Schedule; or in the alternative
(b)Interest at the rate of 10% per annum pursuant to the Supreme Court Civil Procedure Act.
Until the actual date of payment in full."
No money has been repaid.
The defendant delivered a defence dated 9 December 1999 which consists mostly of denials. In relation to the allegation in the statement of claim that the shares to be purchased were not issued to the plaintiffs, the defendant has pleaded "shares were issued to Satwant Holdings Pty Ltd by the defendant's secretary in accordance with the plaintiffs' instructions". In relation to the allegation that the loan funds had become repayable, the defendant pleaded a denial "that the money in the sum claimed or at all is now due for payment".
An affidavit sworn by Garry Raymond Howes on 25 February 2000 was read into evidence. In the affidavit, Mr Howes deposes, in relation to the shares:
"… the intention was a 10% shareholding.
…
I told Mr Heys that a Company named Satwant Holdings Pty Ltd held the shares for the Tasmanian investors in trust and the reason for this was twofold;
(a) so that the Tasmanian investors would vote as a block
(b) … Mr Hutchings together with Messrs Palmer & Spurr had insisted on it
Mr Heys agreed with this strategy."
Mr Howes' evidence was that in February 2000, following the institution of the proceedings, 10 shares were transferred out of the name Satwant Holdings Pty Ltd and into the names of the plaintiffs.
The evidence in the affidavit relating to the loan was:
"… I told Mr Heyes his funds would be returned when the Company was able to return same to all shareholders.
…
… Mr Heys' investment is not due and payable as at this date."
The shares
Although it is clear that neither 10,000 $1 shares, nor 5,000 $1 shares were, or could have been, issued to the plaintiffs, Mr Howes, in his affidavit, says that "the intention was a 10% shareholding". The defendant has neither alleged nor provided any evidence that the shares were to be purchased for more than $1 each. Accordingly, of the sum of $125,000 invested by the plaintiffs in the defendant company, on the present state of the evidence presented on behalf of the defendant, at most, $10 is assignable to the purchase of shares. It is arguable, on the evidence given by Mr Howes, that the plaintiffs agreed to purchase those shares and agreed that the shares were to be held in the same way that applied to the other Tasmanian investors, namely by Satwant Holdings Pty Ltd upon trust. Accordingly, summary judgment will not be given in respect of the claim for repayment of the share purchase price.
The loan
Leaving aside the sum attributable to the share purchase, being $10, the balance sum of $124,990 is the loan funds. The defendant alleges that the agreement was that the loan funds "would be returned when the Company was able to return same to all shareholders". It was submitted by the plaintiffs' counsel that such a term, if it was agreed at all (which is denied), is illusory or void for uncertainty and severable with the effect that the loan funds became repayable, if not immediately, at the latest, upon demand.
I was referred to the cases of Bailes v Modern Amusements Pty Ltd [1964] VR 436 and Argyll Park Thoroughbreds Pty Ltd v Glen Pacific Pty Ltd (1993) 11 ACSR 1. In Bailes, the Court was required to consider, on a summary judgment application, whether or not an alleged term of a loan that moneys were to be repayable "when the company to which they were lent considered that it was in a position to pay" was void for uncertainty. Sholl J observed at 440:
"… what is meant by 'in a position to pay'? Does it mean out of capital, or out of income only? Or out of gross profits? Or out of net profits? Would it be inconsistent with the intention of the parties if the board determined that the company was not in a position to pay because to do so would inhibit plans to expand its operations?"
Sholl J concluded, at 441 - 442:
"The words can reasonably have a number of alternative meanings, and it is impossible judicially to determine that the parties had a common intention to adopt any of them.
In those circumstances I consider that the term limiting the right to repayment is void for uncertainty, but that in its absence there remains an agreement of loan."
In Argyll, Drummond J of the Federal Court considered an alleged loan term that moneys were to be repayable "when the directors of the debtor company felt the debtor company was in a position to make repayment in part or in whole". It was held at 4:
"… but, if the agreed time for repayment operates in a subjective way by leaving it to the borrower to decide for himself when, if ever, he will repay, the term will be void as illusory …".
Counsel for the plaintiffs also referred to the case of Head v Kelk (1963) 63 SR(NSW) 340, a decision of the Full Court of the Supreme Court of New South Wales. There, the clause in question was in terms that loans funds would be repaid when the debtor was "financially able to do so and not before". At 344 and 345, Herron J said:
"Thus an agreement based on consideration to waive interest on a loan a 'until such time as the company is in the position to pay the interest' was held to be valid. In Ledingham v Bermejo Estancia Co Ltd, [1947] 1 All ER 749, Atkinson, J, construed such an agreement as meaning that payment of interest should be postponed until the company was in a position to pay the interest out of income so long as it carried on. …
If the debtor promises to pay the debt 'when he is able' or 'by instalments' or 'in two years' or 'out of' a given fund the creditor can claim nothing more than the new promise given him. Chasemore v Turner (1875), LR 10 QB 500, where in the Exchequer Chamber it was held that a promise to pay 'as soon as we can get our affairs arranged' was sufficient; and the statute runs from the time of becoming able to pay though the plaintiff had not notice of the ability and made no demand. Waters v Thanet (Earl), [1842] 2 QB 757; 114 ER, 295; Hammond v Smith (1864), 33 Beav 452. In the present case the pleas assume that the contract was executed by payment of the money lent. In my opinion the pleas which allege, as a term of the loan, that the defendant was not to repay the money lent until he was able or financially able to do so or out of income or like allegations, if facts proved support such allegations, constitute valid defences to the action."
The cases of Bailes, Argyll and Head v Kelk were considered by the Federal Court in Universal Greening Pty Ltd v Sabine (1999) 17 ACLC 880. There, it was alleged that loans were "predicated on the understanding as between directors that money would only be repayable when the company either through cash flow or through the provision of further capital could afford to do so". In holding that the funds were repayable on demand, Kenny J said, at 886:
"A term to the effect that none of the loans were repayable until Universal Greening could afford to make repayment leaves it to the borrower to decide when, if at all, the occasion for repayment might arise. As Sholl J observed in Bailes at 438, a term of this kind would 'prompt in the mind of the reader a whole series of questions as to what the parties intended'. First, who was to determine when the company could afford to repay? Secondly, what is meant by 'afford to make repayment'."
Earlier, Kenny J, at 885 - 886, referred to what had been said by Drummond J in Argyll (supra), namely:
"It may be that the true distinction between Head v Kelk and Bailes is that if the question whether the agreed time for repayment has arisen can be determined objectively, then the term will be valid; but, if the agreed time for repayment operates in a subjective way by leaving it to the borrower to decide for himself when, if ever, he will repay, the term will be void as illusory …".
In my view, the term contended for by the defendant in this case, namely that the loan funds would be repaid "when the Company was able to" is, at the very least, arguably valid, having regard to Head v Kelk (supra). If, at trial, the court found that the term had been agreed, it may be that in determining its meaning, and whether or not the clause is void for uncertainty, the court would need to consider, "… the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting", Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352.
I am unable to conclude at this stage with certainty that the repayment term alleged by the defendant was not agreed and I am unable to conclude that such a term would necessarily be illusory or void for uncertainty.
The defendant has not set out with particularity the material facts upon which it will be asserted that it has at no time since the loan was given been "able" to repay the investors. However, in the circumstances of this case that omission is of no consequence. Part of the plaintiffs' claim is for damages to be assessed in respect of the failure to repay the loan funds when due. Upon that assessment, the Court will need to determine when, if at all, the loan became repayable. It is inappropriate to give summary judgment based on a fact that will be in issue in consequential proceedings.
Conclusion
The application is dismissed.
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