Re Kaz Nominees Pty Ltd
[2019] VSC 315
•16 May 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS’ LIST
S ECI 2018 01644
RE KAZ NOMINEES PTY LTD
| BAJ PROPERTY (HOLDINGS) PTY LTD | Plaintiff |
| v | |
| KAZ NOMINEES PTY LTD | Defendant |
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JUDGE: | ROBSON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 29 November 2018, 13 December 2018, 4 February 2019 |
DATE OF JUDGMENT: | 16 May 2019 |
CASE MAY BE CITED AS: | Re Kaz Nominees Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2019] VSC 315 |
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CORPORATIONS – Application by company A to wind up company B on grounds that it failed to comply with a statutory demand – Application by company B under s 459S(1)(b) of the Corporations Act2001 (Cth) for leave to oppose the application – Reliance by company B on alleged agreement with company A to defer due date of payment – Agreement not established – Application for leave refused – Order that company B be wound up.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P M Bornstein of counsel | John Dunne & Associates |
| For the Defendant | Mr L Warren, solicitor | Russell Kennedy |
TABLE OF CONTENTS
Introduction.......................................................................................................................... 1
First heads of agreement.................................................................................................... 3
Second heads of agreement................................................................................................ 5
Toorak meeting and alleged variation of terms............................................................. 7
Alleged waiver of second statutory demand................................................................ 11
Submissions........................................................................................................................ 14
Resolution........................................................................................................................... 15
Observation on conduct of the proceedings................................................................. 17
HIS HONOUR:
Introduction
I have before me two applications. The first is an application by Baj Property (Holdings) Pty Ltd (‘Baj’) to wind up Kaz Nominees Pty Ltd (‘Kaz’) on the ground of insolvency on the basis that Kaz failed to comply with a statutory demand issued pursuant to s 459E(2)(a) of the Corporations Act 2001 (Cth) (‘Act’). The second is an application by Kaz, pursuant to s 459S(1)(b) of the Act, seeking leave to oppose Baj’s application for winding up.
On 7 September 2018, Baj served a statutory demand on Kaz demanding payment of an alleged debt in the sum of $500,000, pursuant to heads of agreement dated 27 March 2018 between Baj, Kaz and Hera Project Pty Ltd (‘Hera’), a fully owned subsidiary of Kaz. Kaz failed to comply with the statutory demand and took no steps to have it set aside within the relevant legislative timeframe.
Accordingly, on 4 October 2018, Baj applied under s 459P of the Act to wind up Kaz on the ground of insolvency.
By an interlocutory process dated 1 November 2018, Kaz sought leave pursuant to s 459S(1)(b) of the Act to oppose Baj’s application.
Section 459S of the Act provides as follows:
Company may not oppose application on certain grounds
(1)In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a)that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b)that the company could have so relied on, but did not so rely on (whether it made such an application or not).
(2)The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.
Kaz sought leave to oppose the winding up application, alleging that on or around 19 or 20 September 2018 Baj agreed to, in effect, waive the statutory demand. This was a ground that Kaz could have relied on to have the statutory demand set aside.
On 7 November 2018, Judicial Registrar Hetyey ordered that the winding up application be referred to me and heard at the same time as the application for leave by Kaz.
Kaz accepts that if it is unsuccessful in its application, it has no grounds on which to oppose a winding up order.
Accordingly, the only question I need answer is whether I am satisfied that there was an arrangement, agreement or understanding between the parties that the statutory demand would be waived. While the question is relatively straightforward, to answer it is first necessary to set out the history of dealings between the parties.
The persons mainly responsible for the dealings between the parties were Mr Nikolaos Konstandellos (for Kaz) and Mr Stephen Donnelly (for Baj). Mr John Kaziakouras is the sole director and shareholder of Kaz. Mr Konstandellos is a developer who holds a power of attorney from Mr Kaziakouras and who made affidavits in this proceeding on Kaz’s behalf. Mr Konstandellos is the father-in-law of Mr Kaziakouras.
Mr Donnelly is a property manager employed by Baj. It appears that he is authorised to act on behalf of Baj by its director, Bruce Johnson, notwithstanding that Mr Donnelly is subject to a s 188 Authority pursuant to the Bankruptcy Act 1966 (Cth).
In substance the relevant facts are as follows. Hera had agreed to purchase a block of land in Cranbourne East from third parties, which it then agreed to sell to Baj. Baj paid Kaz $400,000 as a refundable deposit. The third parties claimed to be entitled to terminate the sale to Hera, and therefore it was uncertain whether Hera was able to sell the land to Baj. Baj, Kaz and Hera agreed that if Hera elected not to proceed with the sale of the land to Baj, then Kaz would repay Baj the $400,000 plus interest of $100,000 within 120 days of Hera electing not to sell the land to Baj.
This dispute arises as Kaz alleges that Baj subsequently agreed to vary the terms upon which Kaz would be obliged to repay Baj, such that Kaz would not have to repay the money until 120 days after a town planning permit was issued to develop the land. Baj denies that agreement. Kaz also alleges that this variation to the agreement was confirmed in a telephone conversation between Mr Donnelly and Mr Konstandellos subsequent to Baj issuing the statutory demand the subject of these proceedings. Mr Donnelly also disputes this conversation.
The alleged variation of the terms of repayment was not reduced to writing and the alleged waiver of the statutory demand was not referred to in any correspondence by Kaz’s solicitors. As the reasons below will show, the Court is not satisfied that the agreement to vary the terms of repayment was made. Accordingly, the statutory demand stands and Kaz will be wound up.
First heads of agreement
On or about 27 June 2017, Baj entered into a heads of agreement with Kaz and Hera (‘first heads of agreement’) that dealt with the purchase of land by Baj from Hera. The recitals to the first heads of agreement provided:
AHera has executed a contract for sale of land dated 13 March 2015 (“the Contract”) with Leah and Gino Bisognin (“the Bisognins”) to purchase part of the land at 1 Adrian St, Cranbourne East, being the southern lot (“Lot 1”) on an unregistered plan of subdivision. The unregistered plan of subdivision for 1 Adrian St Cranbourne also contains a northern lot to be retained by the Bisognins (“Lot 2”).
BThe Bisognins claim, and Hera disputes, that they have a right to terminate the Contract. The trial division of the Supreme Court on 22 May 2017 accepted Hera’s position in this regard, however, the Bisognins seek leave to appeal that decision.
CHera has executed an agreement for lease and lease with Woolworths (“Tenant”) dated 18 October 2013. Hera has not completed the Landlord’s Works the subject of the agreement to lease by the anticipated date of practical completion of 1 June 2017, and the Tenant is not obliged to accept handover of the Premises unless a multidirectional signalised intersection has been constructed at the intersection of Ballarto Road and Adrian Street, a condition that will not be met prior to the termination date of 1 June 2019. The Site Plan annexed to the agreement for lease is inconsistent with the approved UDF and the proposed development permit.
The terms of the first heads of agreement then contemplated a sale of Lot 1 of the Cranbourne East site by Hera to Baj. Pursuant to clause 4 of the first heads of agreement, Baj would pay Kaz the sum of $400,000 as a refundable deposit and in the event that the sale contract between Baj and Hera was rescinded (if certain special conditions were not complied with), then that amount would be refundable by Kaz to Baj.[1] Repayment of the deposit was to be secured by the guarantees of Kaz and Hera, and the personal guarantee of Mr Kaziakouras.
[1]Affidavit of Nikolaos Konstandellos, 1 November 2018 [5.2].
Mr Donnelly deposed that, pursuant to the terms of the first heads of agreement, he caused the total sum of $400,000 to be paid by Baj to Kaz between 27 June 2017 and 14 July 2017.[2]
[2]Affidavit of Stephen Donnelly, 15 November 2018 [5].
However, negotiations between the parties in relation to a sale contract for Lot 1 broke down. On 26 October 2017, the solicitors for Kaz issued a letter to the solicitors for Baj, requiring that Baj accept the sale contract proposed by Kaz by 1 November 2017, failing which Kaz ‘would take steps to repay the $400,000 … by 30 November 2017’.[3] Neither of these events occurred.
[3]CB 241–243.
The first heads of agreement failed to set out if and/or when the original payment by Baj to Kaz was to be repaid in circumstances where no sale contract for Lot 1 was ever entered into.
Baj contended that the payment to Kaz of $400,000 was a loan and, as there was no agreement as to repayment, the loan was repayable as soon as it was demanded.[4] Mr Konstandellos asserted that the payment was neither a loan nor a gift, but was money received from Baj which was to be refunded if the sale did not go ahead but only after a development permit had been issued in relation to the Cranbourne East site (Lot 1) by the relevant council.[5] I understand that the issuing of a development permit to Kaz or Hera for Lot 1 may have improved their financial position which may have facilitated the repayment of the $400,000 to Baj.
[4]Transcript of Proceedings (29 November 2018) 110.6–12.
[5]Transcript of Proceedings (29 November 2018) 65–66.
When no repayment had been made by 5 March 2018, Baj issued a statutory demand claiming the sum of $400,000 pursuant to the first heads of agreement (‘first statutory demand’).
Mr Konstandellos deposed that at the time the first statutory demand was issued the parties were in dispute about whether: (1) the first heads of agreement was binding; (2) if so, whether Baj had acted reasonably in refusing the sale contract proposed by Kaz; and (3) if the term requiring payment from Kaz to Baj had been triggered.[6]
[6]Affidavit of Nikolaos Konstandellos, 1 November 2018 [8].
On 27 March 2018, Mr Konstandellos and Mr Donnelly attended a meeting at the offices of Mr Leonard Warren of Russell Kennedy, solicitors for Kaz, in an attempt to resolve the dispute and the issue of the first statutory demand. Mr Konstandellos deposed that when Mr Donnelly insisted that the sum of $400,000 was immediately due and owing, Mr Konstandellos disputed that contention and stated he would issue an application to set aside the statutory demand on the basis of a genuine dispute.[7]
[7]Affidavit of Nikolaos Konstandellos, 1 November 2018 [10].
The negotiations at this meeting resulted in the execution of a further heads of agreement dated 27 March 2018 (‘second heads of agreement’), pursuant to which Baj agreed to withdraw the first statutory demand. The withdrawal was documented in an email from Mr Donnelly to Mr Warren on 27 March 2018.[8]
[8]CB 272.
Second heads of agreement
The recital to the second heads of agreement referred to the first heads of agreement, noted that the time for settlement pursuant to that first agreement had expired and stated that the parties had agreed to regularise their arrangements. The recital further stated that Baj was aware of an extant appeal by the Bisognins who intended to seek to repurchase Lot 1 for the sum of $3.6 million. The second heads of agreement again contemplated a sale by Hera to Baj of Lot 1, for the sum of $8.05 million (plus GST). In relation to the refundable deposit of $400,000 it provided:
3The $400,000 referred to in clause 4 of the first Agreement is not repayable by Kaz to Baj unless either of the following subclauses apply.
3.1.1Baj has the right to elect not to proceed with the purchase of the Property provided it does so within 14 days of the issue by the City of Casey of a development permit in respect of the Property, in which case the $400,000 will be paid by Kaz to Baj within the following 120 days. Payment of that sum is guaranteed by John Kaziakouras.
3.1.2Hera has the right to elect not to proceed with the sale of the Property provided it does so within 14 days of a decision by the Court of Appeal in respect of the appeal referred to in the Recitals, in which case the $400,000 will be paid by Kaz to Baj within the following 120 days, together with interest agreed in the sum of $100,000. Payment of that sum is guaranteed by John Kaziakouras.
4Baj agrees to immediately withdraw its statutory demand to Kaz.
5The parties must document these heads of agreement into binding terms of agreement, an agreed contract of sale and an agreed contract of guarantee by 13 April 2018.
The second heads of agreement was prepared by, and executed in the presence of, Mr Warren.[9] Mr Konstandellos deposed that the second heads of agreement was ‘an understanding between the parties’ only as Mr Konstandellos was not a director of Kaz and Mr Donnelly was an undischarged bankrupt.[10] Further, the second heads of agreement contemplated a third party guarantee from Mr Kaziakouras, and Mr Warren insisted that Mr Kaziakouras be given an opportunity to obtain independent legal advice. Mr Konstandellos alleges that it was therefore agreed between the parties that the second heads of agreement could not be immediately binding.[11]
[9]Affidavit of Stephen Donnelly, 15 November 2018 [9].
[10]Affidavit of Nikolaos Konstandellos, 1 November 2018 [11].
[11]Affidavit of Nikolaos Konstandellos, 1 November 2018 [12].
If things had stood as per the second heads of agreement, then $500,000 was payable by Kaz to Baj within 120 days of Hera electing not to proceed with the sale of Lot 1 to Baj under clause 3.1.2. It is alleged by Kaz and disputed by Baj, however, that clause 3.1.2 of the second heads of agreement was varied so that the moneys were not repayable by Kaz to Baj until 120 days from the date of a planning permit being granted to develop the Cranbourne East site.
Toorak meeting and alleged variation of terms
In the hours following the meeting of 27 March 2018, correspondence passed between Mr Donnelly and Mr Warren clarifying key points of the guarantee, which was to be drafted by Mr Donnelly’s solicitors. Mr Donnelly understood that the guarantee was to be provided by Hera, Kaz and Mr Kaziakouras personally, as was the case with the first heads of agreement.[12] Mr Warren, however, thought that a guarantee was only required from Mr Kaziakouras.[13] In an email to Mr Warren at 6:11pm that day, Mr Donnelly stated:
My expectation was/is Hera and Kaz have to maintain the previous undertaking… and John Kaziakouras will have to sign the guarantee himself…Nick rang him and then said John agreed so I expect the same undertaking.[14]
[12]CB 267.
[13]CB 269.
[14]CB 270.
On 10 April 2018, Mr Donnelly emailed the draft guarantee to Mr Konstandellos. It guaranteed the repayment of monies to Baj pursuant to clause 3 of the second heads of agreement.[15] The guarantee was executed in those terms without alteration or amendment by Mr Kaziakouras on 19 April 2019.
[15]CB 277–278.
Mr Donnelly and Mr Konstandellos subsequently met at a café in Toorak where Mr Konstandellos handed over the executed guarantee. Importantly, it was at this meeting that the terms of the second heads of agreement were allegedly varied.
Mr Kaziakouras had allegedly informed Mr Konstandellos that he was willing to give a guarantee to Baj, but only on the condition that the principal debt was not due and payable until 120 days after a permit was granted to develop the Cranbourne East site.[16] Mr Konstandellos claimed that at the meeting at Toorak, and pursuant to these instructions of Mr Kaziakouras, he said words to Mr Donnelly to the effect that he was not going to hand the guarantee over unless Mr Donnelly gave an extension to pay until 120 days from the date of a permit being issued, rather than 120 days from the election by Hera not to proceed with the sale of Lot 1 to Baj.[17]
[16]Affidavit of Nikolaos Konstandellos, 1 November 2018 [13]. Mr Kaziakouras was not called to give evidence nor did he file any affidavit material in the proceeding.
[17]Affidavit of Nikolaos Konstandellos, 1 November 2018 [14]; Transcript of Proceedings (29 November 2018) 55–56; 77.22–31.
Mr Donnelly denied any such agreement was made. Mr Donnelly gave evidence that he did not have a conversation with Mr Konstandellos in those terms. Mr Donnelly’s recollection of the meeting was that it was very short, lasting only a couple of minutes, with some brief social ‘chit-chat’ while the guarantee was handed over.[18]
[18]Transcript of Proceedings (13 December 2018) 189.
Mr Donnelly contended that this meeting occurred after lunch on 26 April 2018.[19] Mr Konstandellos, on the other hand, contended that the meeting occurred at 11am on 1 May 2018.[20]
[19]Transcript of Proceedings (13 December 2018) 191–193.
[20]Transcript of Proceedings (29 November 2018) 88.
There is in evidence before me an email from Mr Warren to Mr Donnelly at 7:56am on 1 May 2018 concerning the guarantee in which Mr Warren referred to the non-binding heads of agreement dated 27 March 2018 and said that he was instructed as follows:
1The judgment in the Appeal was handed down in favour of Hera;
2Nick has told you that Hera elects not to proceed with the sale of the property to BAJ.
3Nick has told you that John has signed the guarantee and is willing to hand it over, but on the basis that the moneys payable by KAZ to BAJ will be payable 120 days after Hera obtains its development permit from the City of Casey, and you accepted the guarantee on that basis.
….[21]
[21]CB 282.
Adopting Mr Konstandellos’ version of events, this email preceded the meeting with Mr Donnelly at Toorak, and therefore Mr Donnelly would have known that was the basis on which the guarantee was to be offered. Adopting Mr Donnelly’s version of events, the email came some days after the guarantee had been provided and accepted.
Mr Donnelly then responded to Mr Warren at 11.00am, stating:
The Heads of Agreement dated 27 [March] 2018 is binding on the parties. You are relying on it in regards to 3.1.2. It was signed as the basis for the further agreement you undertook to provide. In the absence of that agreement the current Heads of Agreement remain binding on the parties.
Subsequently, at 11:05am on 1 May 2018, Mr Donnelly provided Mr Warren by email with a scanned copy of the executed guarantee.[22] At 12:41pm he wrote:
Clause 3.1.2 is clear that payment is expected within the 120 days from Hera electing not to proceed with the sale to BAJ not 120 days from the issue of a permit.[23]
[22]CB 284.
[23]CB 285.
As will be noted, Mr Warren’s email to Mr Donnelly of 1 May 2018 also served to give notice to Baj that Hera elected not to proceed with the proposed sale to Baj pursuant to the second heads of agreement. Time was thus running for the payment of $500,000 to Kaz, if the second heads of agreement had not been varied as alleged by Kaz.
There appears to have been no further written correspondence between the parties between 1 May 2018 and 14 August 2018. Despite this, Mr Konstandellos deposed that he and Hera’s consultant were in almost constant oral communication with Mr Donnelly, informing him as to the progress of the planning permit application for the Cranbourne East site. The reason Mr Konstandellos had been doing so was allegedly because Mr Donnelly had said words to Mr Konstandellos to the effect that he wanted to be kept informed as to the progress of the planning permit so that he would know when the moneys would become payable.[24] Mr Donnelly agreed that he had been kept informed of the progress of the Cranbourne East site, but explained that this was because Baj was still possibly interested in proceeding with a purchase of the site.[25]
[24]Affidavit of Nikolaos Konstandellos, 1 November 2018 [20].
[25]Transcript of Proceedings (12 December 2018) 215.29–216.9; CB 289.
On 14 August 2018, Mr Donnelly resumed email correspondence with Mr Konstandellos and Mr Warren, reminding them the funds were due on 31 August 2018.[26]
[26]CB 286.
Mr Donnelly deposed that he made various demands in August 2018 by way of emails and telephone calls, each to the effect that 120 days from 1 May 2018 was the date for payment.[27] On 21 August 2018, Mr Donnelly sent an email to Mr Warren stating that he had that morning received an abusive telephone call from Mr Konstandellos. Mr Donnelly reminded Mr Warren that payment was shortly due, whilst asking that he instruct his client to stop making abusive telephone calls.[28] Mr Konstandellos, who was copied into that email, responded but did not assert that the due date for payment as stipulated by Mr Donnelly was incorrect.[29]
[27]Affidavit of Stephen Donnelly, 15 November 2018 [14].
[28]CB 287.
[29]CB 288.
Mr Donnelly originally deposed that from this day, he blocked the telephone number that Mr Konstandellos had used so that he could not ring Mr Donnelly’s mobile number.[30] As will later become apparent, however, this was not entirely correct.
[30]Affidavit of Stephen Donnelly, 15 November 2018 [15].
On 6 September 2018, Mr Donnelly sent the following email to Mr Konstandellos:
Subject: Cranbourne
Nick
Apologies I have been with my lawyer and accountant in meetings then lunch and now have other commitments.
I can discuss further in the morning however 1 or 4 things can happen.
1You pay the $500,000 which is overdue.
2Provide security, a Caveat. I don’t care what Jack says.
3We re enter into a sale agreement subject to approval of the permit and Woolworths again.
4I issue a Stat Demand on the Company by tomorrow 5 pm.
I don’t want to do 4 but now will if 1 to 3 not forthcoming.
Let’s chat in the morning, no further calls today thank you.
Steve.[31]
[31]CB 295.
It will be noted that the sum of $500,000 is the principal debt plus agreed interest pursuant to clause 3.1.2 of the second heads of agreement.
When there had been no positive response or any payment Mr Donnelly issued and served a fresh statutory demand and supporting affidavit dated 7 September 2018 (‘second statutory demand’). It is this second statutory demand which is the subject of the applications before me.
Alleged waiver of second statutory demand
Mr Konstandellos deposed in his affidavit that on 19 September 2018, he rang Mr Donnelly to resolve the issue of the second statutory demand. He allegedly said to Mr Donnelly that the issue of the statutory demand was premature as no moneys were then payable and reminded Mr Donnelly that Baj had agreed (presumably at the meeting in Toorak where the guarantee was handed over) that no moneys were payable until 120 days after a planning permit was issued for the Cranbourne East site.[32]
[32]Affidavit of Nikolaos Konstandellos, 1 November 2018 [22].
Mr Konstandellos says that Mr Donnelly said words to the effect that he accepted that Kaz need not pay any monies to Baj until 120 days after the planning permit was issued.[33]
[33]Affidavit of Nikolaos Konstandellos, 1 November 2018 [23].
As a result of that alleged conversation, Mr Konstandellos says that he took no steps to have the second statutory demand set aside. But for that conversation, Kaz would have taken steps to set aside the second statutory demand on the basis of a genuine dispute as to whether (1) there was any amount payable by Kaz to Baj, (2) that the amount payable was of a lesser sum, or (3) that it was not then payable.[34]
[34]Affidavit of Nikolaos Konstandellos, 1 November 2018 [24]–[25].
In his oral evidence, Mr Konstandellos indicated the telephone call in fact occurred on 20 September 2018. He was taken to a text message that he received from Mr Donnelly on 19 September 2018, which he said was in an apparent response to a call Mr Konstandellos had made to him.[35] It stated:
Hi Nick
I will ring tomorrow a good friend of mine passed away so Im tied up with that
Steve[36]
[35]Transcript of Proceedings (29 November 2018) 61–62.
[36]CB 300.
Mr Konstandellos said that the next day (being 20 September 2018) he had a telephone conversation with Mr Donnelly in which he gave him an update on the Cranbourne East site as Mr Donnelly expressed an interest in what was going on with the project. Mr Konstandellos said:
Steve, you – I want one thing. You remember when I hand over the agreements? You promised me you can, ah – you promised me you’re not going to exercise any rights. Give the 120 days after the permit. Now, I want an answer now. Yes or no?” And he said, “Yes, Nick, I give you that time.”
Now ----?--- It was before that, yes, it was an argument about, ah – he asked about guarantee – to provide guarantee. And I said, “I cannot do that, to provide you guarantee.”[37]
[37]Transcript of Proceedings (29 November 2018) 61–62.
As mentioned above, Mr Donnelly initially deposed that no such telephone call could have taken place, as he had blocked Mr Konstandellos’ telephone number in August 2018. In cross-examination, Mr Donnelly was shown telephone records of calls made by Mr Konstandellos’ mobile phone to Mr Donnelly’s in the relevant time period.[38] Mr Donnelly conceded that a phone call took place around 19 or 20 September 2018 but claimed that the substance of the conversation was to tell Mr Konstandellos to stop abusing him.[39] Later, Mr Donnelly conceded that the substance of the phone call possibly extended to a discussion about the price of the Cranbourne East property.[40] Mr Donnelly was adamant, however, that he did not agree that Kaz did not have to repay the $500,000 until 120 days after a permit was obtained.
[38]Transcript of Proceedings (4 February 2019) 265–268.
[39]Transcript of Proceedings (13 December 2018) 226–227.
[40]Transcript of Proceedings (4 February 2019) 283.23–31.
In cross-examination, Mr Konstandellos agreed that he made no note of the alleged conversation, and did not seek to confirm it in an email to Mr Donnelly.[41] Mr Konstandellos deposed that he only told Mr Warren that ‘I speak to Steve. I don’t think — I don’t think he’s gonna do something’.[42] This can hardly be said to amount to an agreement to waive the statutory demand. Mr Warren did not write to Mr Donnelly confirming any arrangement to waive the second statutory demand on the basis that no moneys were yet due. The inference arises therefore that Mr Konstandellos did not tell Mr Warren that there was an agreement to waive the statutory demand, which is an extraordinary inference to draw, when Kaz was facing being wound up.
[41]Transcript of Proceedings (29 November 2018) 99–100.
[42]Transcript of Proceedings (29 November 2018) 99.29-30.
Mr Warren did not give evidence to clarify what Mr Konstandellos told him, or to rebut the inference that Mr Konstandellos did not tell him of the alleged agreement with Mr Donnelly, even though the matter was raised by counsel for Baj during Kaz’s case.
On the previous occasion when Baj had agreed to withdraw the first statutory demand, Mr Warren was intimately involved in drawing up the second heads of agreement to record the arrangement between Kaz and Baj. The failure of Mr Warren to draw up such an agreement further raises the inference that Mr Konstandellos did not inform him of the alleged agreement.
Again, the failure of Mr Warren to rebut the inference that he was not informed of any such alleged agreement between Mr Konstandellos and Mr Donnelly means that I am more readily able to draw the inference. The failure of Mr Konstandellos to tell Mr Warren of any such agreement, throws doubt, in my view, on whether any such agreement was made, particularly bearing in mind the intimate involvement of Mr Warren in the relations between Mr Donnelly and Mr Konstandellos and the practice of Mr Warren to reduce their agreements to writing.
Mr Warren did not seek to explain his failure to give evidence on the basis that he appeared for Kaz.
Submissions
Mr Warren submitted that I should accept the evidence of Mr Konstandellos with respect to the alleged initial variation to the agreement and its confirmation on 20 September 2018 although it was denied by Mr Donnelly. Mr Warren submitted that the history of the dealings in respect of the debt demonstrated that Mr Konstandellos had at all times asserted that the moneys were not repayable until 120 days after the permit was issued.
Mr Warren also submitted I should reject the account of Mr Donnelly, who shifted in his evidence on at least two occasions in respect of the critical conversation on 20 September 2018. First, he denied a phone call could have taken place as Mr Konstandellos’ number was blocked, but then conceded a phone call had occurred on or around that date. Second, he claimed that the substance of the conceded call was to request Mr Konstandellos stop his abuse, but then admitted it may have extended to the price of the Cranbourne East site and the like.[43]
[43]Transcript of Proceedings (4 February 2019) 290, 311–312.
Mr Bornstein, appearing for Baj, submitted that there was no reason why Baj would agree to payment 120 days after a permit was issued in circumstances where it had been Hera that elected not to continue with the sale to Baj, as opposed to Baj ‘bailing on the contract’. Baj had received nothing for its money, which had been outstanding for a considerable period of time.[44] Further, there was no certainty as to when a permit would ultimately be issued. Mr Bornstein submitted that, in the circumstances, it was unlikely that Baj would agree to payment at an indefinite time.[45]
[44]Transcript of Proceedings (29 November 2018) 111.16–25.
[45]Transcript of Proceedings (4 February 2019) 303.
Mr Bornstein further submitted that all contemporaneous documents show that Baj never accepted that the moneys were repayable only after 120 days from when a permit had been issued.[46]
[46]Transcript of Proceedings (29 November 2018) 112.24–31.
Resolution
The sole issue before me is to decide whether I am satisfied on the balance of probabilities that Mr Konstandellos had a conversation with Mr Donnelly in which Mr Donnelly said words to the effect that he accepted that Kaz need not pay any monies to Baj until 120 days after the permit for the Cranbourne East site was issued.
Kaz bears the onus of establishing that Baj expressly agreed to vary the terms to this effect, in order to avoid being wound up. I am not satisfied that such an agreement took place. I was not impressed with either Mr Konstandellos or Mr Donnelly. I would find it difficult to decide between the two of them on the oral evidence alone, but for the other evidence that infers that no such agreement was made.
First, such an agreement is contrary to the stance taken by Mr Donnelly in his email of 6 September 2018. The email gave four alternative solutions, none of which was that which Mr Konstandellos asserts Mr Donnelly agreed to. The alleged agreement is also inconsistent with Mr Donnelly’s continued and contemporaneously documented stance that the moneys were payable 120 days after the notice on 1 May 2018 that Hera had elected not to sell the land to Baj.
Secondly, the agreement is not consistent with the subsequent actions of Mr Donnelly, who allegedly immediately breached the agreement by giving instructions for the issuing of the creditor’s petition. If such an agreement was made, the question remains of why Baj would proceed to press the application to wind up Kaz. Mr Warren would have it that it was in the interests of Baj to be indulgent with Kaz as Baj wanted to purchase the Cranbourne East property. Again, if that were the case, why would Baj proceed with the winding up?
Thirdly, on the occasion of the first statutory demand, the withdrawal of the first statutory demand and new arrangement was formalised in the second heads of agreement. It seems most unlikely that if such an agreement had been made to vary the terms of the second heads of agreement as suggested, that Mr Warren would not have been told and written terms be drawn up as had been done in the past. I am able to, and do infer, that Mr Konstandellos did not inform his solicitors of the purported agreement (at best telling them only that he did not think Mr Donnelly would do anything), which he surely would have done to inform them they did not need to be concerned about the winding up. As mentioned, Mr Warren’s failure to give evidence leads me to be more comfortable in drawing such inferences.
Finally, I would have expected an email or some form of communication to have been made confirming the agreement. No such communication was produced.
Accordingly, I am not satisfied on the balance of probabilities that any such agreement was reached to alter the obligation on Kaz to repay the moneys 120 days after an election by Hera not to proceed with the sale to Baj.
In those circumstances, I dismiss the application by Kaz for leave to oppose the winding up application under s 459(1)(b). Mr Kaziakouras is the sole director and shareholder of Kaz. I consider it only just that Mr Kaziakouras pay the costs of this application, rather than an order be made against Kaz, which is likely to be insolvent. I order that Mr Kaziakouras pay the costs of the application.
I order that Kaz be wound up and refer the winding up matter to Judicial Registrar Hetyey to complete the matters attendant upon a winding up order.
Observation on conduct of the proceedings
Mr Warren appeared for Kaz and ably argued the matter on its behalf. Mr Warren, however, was intimately involved in the transactions the subject of the hearing. For example, he drafted and then witnessed the signing of the second heads of agreement. He was involved in extensive communications with Mr Donnelly about the matters the subject of the hearing. Mr Donnelly responded to questions asked by Mr Warren in cross-examination by referring to things said to him and done by Mr Warren. As mentioned, Mr Warren’s failure to give evidence had a bearing on the implications that were open for me to draw.
The comments of the New South Wales Court of Appeal in Barrak Corporation Pty Ltd v The Kara Group of Companies Pty Ltd[47] are informative. There a solicitor appeared for a company he owned and also gave evidence on behalf of his company.
[47]Barrak Corporation Pty Ltd v The Kara Group of Companies Pty Ltd [2014] NSWCA 395.
Barrett JA said:
In relation to the solicitor, Mr Barrack, it is a matter for concern that, according to the part of his cross-examination quoted by Adamson J, he saw nothing untoward in his acting as solicitor for a plaintiff in the initiation and conduct of proceedings in which he knew that he was himself to be that plaintiff's principal witness on factual matters at the heart of the parties' controversy. The terms of the rule of professional conduct which applied at the time and to which his attention was directed were clear. The operative words were "must not" - subject to an "exceptional circumstances" qualification. The purpose of the rule was also clear. It sought to underwrite the practitioner's primary duty to the court as one of its officers concerned in the administration of justice; and, to that end, to eliminate a particular form of influence or interest that, of its nature, might compromise the practitioner's ability to discharge that duty.[48]
[48]Ibid [2].
I also refer to the rule 27.1 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015:
27.1In a case in which it is known, or becomes apparent, that a solicitor will be required to give evidence material to the determination of contested issues before the court, the solicitor may not appear as advocate for the client in the hearing.
Mr Warren did not have any personal interest in Kaz; Kaz was merely his client. But his involvement in the affairs under consideration made it likely that he may need to give evidence. He nevertheless proceeded to appear for Kaz.
I have not heard any submissions on whether or not it was appropriate for Mr Warren to appear in those circumstances, so I shall not comment further.
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