Skidteck Construction Services Pty Ltd v Calistrata Pty Ltd

[2010] VCC 492

IN THE COUNTY COURT OF VICTORIA Revised

Not Restricted

AT MELBOURNE
CIVIL DIVISION

COMMERCIAL LIST - GENERAL DIVISION

Case No. CI-09-01684

SKIDTECK CONSTRUCTIONS SERVICES PTY LTD	Plaintiff
v
CALISTRATA PTY LTD and LINDSAY BATES	Defendants

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JUDGE:	HIS HONOUR JUDGE ANDERSON
WHERE HELD:	Melbourne
DATE OF HEARING:	13 & 14 May 2010
DATE OF JUDGMENT:	27 May 2010
CASE MAY BE CITED AS:	Skidteck Construction Services Pty Ltd v Calistrata Pty Ltd & Anor.
MEDIUM NEUTRAL CITATION:	[2010] VCC 0492

REASONS FOR JUDGMENT

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Catchwords: Contract – Transfer of shares by retiring director to continuing director – Agreement to reimburse expenses of retiring director incurred during the start up of the company – Whether agreement reached that further $200,000 would be paid for the transfer of the shares – Participant in crucial discussions between the parties not called as a witness – Whether adverse inferences should be drawn – Jones v Dunkel (1959) 101 CLR 298.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P.W. Lithgow	Hill Legal
For the Defendants	Ms R. Sion	Rotman & Morris
HIS HONOUR:

1           Jason Skidmore and Lindsay Bates worked together in the Pilbara. Skidmore was a director of the plaintiff, Skidteck Construction Services Pty Ltd (“Skidteck”). Bates was a director of Excomm Communications Pty Ltd (“Excomm”). Both companies were involved in the provision of telecommunications infrastructure for Fortescue Mining Group (“FMG”) in its Team 45 Project in the Pilbara.

2           James Herden was FMG’s project infrastructure manager responsible for the work being performed by Skidmore’s and Bates’s companies. In early 2008, Excomm was performing subcontract work for Skidteck. Herden suggested a further business opportunity for Skidmore and Bates. If they were to form a new company, Herden would give the company a substantial contract to provide crane trucks for use in the Team 45 project.

3           In April 2008, Skidmore and Bates became the directors of a company, Calistrata Pty Ltd. Skidmore, through the plaintiff Skidteck was to hold 12 shares and Bates, the remaining 12 issued shares in the company. The company purchased three trucks and a bobcat. Skidteck paid the deposit on the vehicles and the balance of purchase price was financed through a broker, Michael Ross. The company registration was carried out by Companies Express Pty Ltd.

4           On 30 May 2008, Skidmore resigned as a director and the shares of Skidteck were transferred to Bates, so that Bates became the sole director and shareholder in the company. Documents were later prepared, executed and filed with ASIC to register the change of directorship and shareholding as from 30 May 2006.

5           There is no dispute that Bates agreed to pay to Skidmore the sum of $64,966.60 to reimburse Skidteck for the costs incurred from the start up period of Calistrata. Bates paid $43,151.78 of that sum leaving $21,814.82 owing. It was conceded by defendants’ counsel, Ms Sion, that the plaintiff was entitled to judgment for that amount.

6           The plaintiff alleged that Bates, on behalf of himself and Calistrata, had agreed at a meeting on or about 3 June 2008, to pay the sum of $200,000 plus GST to Skidteck in consideration for the transfer of the shares in Calistrata and Skidmore’s retirement as a director of the company. Bates denied that any such agreement had been

reached.

7           When the company was established, in order to finance the purchase of the vehicles, both Bates and Skidmore were required to provide personal guarantees and other security in order to obtain the necessary borrowings. As part of the agreement, by which Skidmore retired from the company, it was agreed that his personal liability as a guarantor, and the security he had provided to finance the purchase of vehicles by Calistrata, would be replaced by further security offered by Bates.

8           The sole issue for determination in the proceeding was whether Bates or Calistrata were liable to Skidteck for the sum of $200,000 plus GST as consideration for Skidmore retiring from the company and the transfer of the shares in the company from Skidteck to Bates.

9           In its pleadings, Skidteck alleged that in discussions on or about 3 June 2008 between Jason Skidmore, Lindsay Bates and James Herden in Skidteck’s hut at Camp 90, it was agreed that Skidmore would resign as a director of Calistrata, that Calistrata would reimburse the initial capital contributed by Skidteck to the company, and that Calistrata or alternatively Bates “would pay to the plaintiff the sum of

$200,000 for the transfer of the plaintiff’s shares in the first defendant representing, in
effect, the plaintiff’s share of monies due to the first defendant from Team 45 (being
minor works C001 Logistics) [and that] the plaintiff would invoice the first defendant
for the said sum of $200,000 (plus GST) and that Mr Skidmore would be removed as

guarantor of the trucks leased by Calistrata”.

10         Skidmore gave evidence that on 30 May 2008 he met with Herden and Bates. In addition, Skidmore’s brother-in-law, Daniel Bilt, was present and the meeting took place in Bilt’s room at Camp 90. Skidmore said that he wanted to withdraw from

Calistrata because the arrangement for the supply of trucks by Calistrata for the project had not been properly formalised and Herdens’ involvement in the transaction suggested a conflict between his responsibilities as the project manager and the initiative he had taken to have Skidmore and Bates establish Calistrata to take up a transportation contract on the project.

11         Skidmore said that at the meeting, it was agreed that he would resign as a director, the start up expenses would be paid, he would be removed as a guarantor and $200,000 plus GST would be paid to Skidteck for him to retire from Calistrata. Skidmore said that after the meeting, he had contacted his wife in Melbourne and requested her to initiate the change in the company structure. On 30 May, Mrs Skidmore sent emails to Ross and Companies Express to put in train the necessary arrangements for Skidmore’s withdrawal as a director and his release from the guarantees.

12         Bilt gave evidence confirming the evidence of Skidmore. He said that Herden and Bates had made Skidmore an offer to get out of Calistrata. He said that Herden had asked Skidmore, “Would you be happy with $200,000 plus the establishment costs pretty much for you to relinquish all rights in Calistrata”.

13         Bates denied that there was a meeting in Bilt’s room at Camp 90. He said he had never been in Bilt’s room. He said that on 28 May he was at Camp 90 in an office shared by Skidteck and Excomm. Skidmore asked him to “come outside for a talk”.

Skidmore had told him that James Herden could not be trusted and he “wanted out” and all his money back. He said that no figure was discussed at that time and there was no offer by him to purchase Skidmore’s shares.

14         Skidmore said that a further meeting took place with Herden on 3 June 2008. The meeting was primarily concerned with a bonus of $420,000 offered by the principal contractor to sub-contractors for early completion. Skidmore said that during the

discussions, Herden had referred to the earlier agreement in relation to the $200,000.

15 Bilt whereby Bates agreed to pay the sum of $64,966.60 as the “cost incurred from
the start up period of Calistrata”. A further meeting took place on 26 June 2008
between Skidmore and Bates. Bates initiated the meeting, which he said was being
called because of “the hope of brokering a deal between you and James”. On 16 June 2008, Skidmore met with Bates. They signed a document witnessed by reflected in an email Bates sent to Skidmore on 28 June 2008.

16         The email dated 28 June 2008 read as follows, “This is an email to give you some

sort of official confirmation as to our agreement reached on Thursday. Once anticipated that monies should be available in approx. 60 days.

1.	Skidteck will pay all Excomm invoices (one more to do for two guys for one week, ending on Tuesday 24th). This invoicing and payment would take place in the first week for the new financial year (Craig and Keg have been paid up until last Tuesday night).
2.	Skidteck can invoice for $64,000 for costs incurred.
3.	Skidteck can invoice for $200,000 for works completed on the FMG project.

Any queries please give me a call so as we can have everything sorted”.

17         Skidmore said that following the meeting on 26 June, he asked his wife to send a request to Bates for purchase orders. Mrs Skidmore sent an email in her husband’s name on 29 June 2008 at 6.55pm which read as follows: “Please send a purchase

order for the invoices that I will organise for the 64,000 and 200,000 as soon as

possible”. Mrs Skidmore said that, later that evening when she had received no response to her request, she prepared an invoice no.102 dated 29 June 2008 for $220,000 (including GST) addressed to Calistrata for “share of minor works C001 –

logistics agreement between Lindsay Bates on 28/06/08”.

18         Mrs Skidmore said that she posted the invoice to Calistrata at its address in Notting Hill, Victoria the following day but, through “error”, did not email the invoice to Calistrata as would have been her normal practice. On 1 July 2008, she prepared a further invoice no. 101 addressed to Calistrata claiming $64,966.60 for “company establishment fees” and “deposit and delivery of trucks”. Mrs Skidmore said she posted and emailed the invoice to Calistrata. Mrs Skidmore said that she was aware, from shortly after her husband had reported to her about the meeting on about 28 May 2008, that her husband had been offered and had agreed to accept the sum of $200,000 plus GST to retire from Calistrata.

19         Bilt said that although he did not draft the invoice for the $200,000, he had approved the document drafted by Mrs Skidmore. Bilt said that he was present at a further meeting between Skidmore and Herden on 5 July 2008 at the Camp 90 office. He recorded the conversation. During the conversation, there was reference to an earlier discussion between Hendon and Skidmore. Bilt said that the tape recording recorded Hendon asking, in relation to the earlier conversation, “How much money was it on the table?” Bilt replied, “420 plus 200”.

20 Bilt said that the tape noted the date of the recording as 5 July 2008. According to
Skidmore, $420,000 was discussed at the meeting he had with Herden on 3 June at
which Bilt was not present, and Herden had referred to $200,000 on that occasion. It

Bilt suggested that this conversation was confirmation of the discussion in late May. conversation between Skidmore, Bates and Herden on 26 June, although Bilt was not present at that discussion. I am unable to reach any concluded view as to what the tape recording refers to. There is no support on the evidence for the assertion that the figure of $200,000 referred to was consideration for the transfer of Skidteck’s shares in Calistrata.

21         Following these conversations, there was email correspondence between Bates and Skidmore. Between 12 July 2008 and 7 November 2008, there was extensive email correspondence between them in which Bates made requests for monies outstanding

by Skidteck to Excomm. The first request on 12 July 2008 stated that: “Excomm is
still owed over $110,000”. The final two payments made by Skidteck to Excomm
were on 12 November 2008 by two transfers, one of $60,813.94 and the other of
$12,100. This apparently left two disputed invoices outstanding.

22         During the whole course of this extensive correspondence, there was no reference by Skidmore to the fact that he believed that $200,000 plus GST was owing to Skidteck from Calistrata or Bates. The general tone of the responses from Skidmore is that he is apologetic for his inability to settle Skidteck’s debts to Excomm.

23         On 12 November 2008, Skidteck sent a letter of demand to Bates claiming the sum of $64,966.60 pursuant to the agreement dated 16 June 2008. Bates sent an email on 16 November to Skidmore enclosing an earlier email dated 19 June 2008 in which he had raised a number of queries relating to various items in the costs table signed by the parties on 16 June. Skidmore responded to the queries in an email dated 19 November and on 24 November requested payment of the outstanding sum. Bates made a payment of $43,151.78 on 5 December setting off against the total sum of $64,966.60, the sum of $21,814.82 which he said “Skidteck currently owes Excomm/Calistrata the sum of 21,000 odd in relations to invoices”.

24         Although Mrs Skidmore said that she posted invoice no. 102 to Calistrata on about 30 June 2008, there is no evidence that the invoice was sent at that time. On 3 December 2008, an email was sent by Skidmore to Bates attaching a copy of the invoice. The email read as follows: “Please note that Skidteck has still not received

the Purchase orders for the below agreements. So therefore, I have attached for your
convenience the invoice for the below stated agreement (point 3, hi-lighted),
discussed prior but agreed upon, dated 28 June 2008. Which please note that it also
includes share of minor works C001 — logistics. If you have any issues opening the

attachment or any questions, please do not hesitate to contact me on 0410 485 548”.

25         On 5 December 2008 at 1.48pm, Skidmore forwarded to Bates an email attaching a letter of demand “for the agreed amount of $200,000 excluding GST” and threatening legal proceedings if the payment was not made. The letter of demand, dated 5 December 2008, read as follows: “This is a letter of demand to Calistrata for monies

outstanding to Skidteck Construction Services Pty Ltd as we have not received any reply from you in relation to this matter upon our numerous requests. I would like to refer your attention to the correspondence sent from Lindsay Bates date of

transmittal 28 June 2008, where you (Lindsay Bates the director of Calistrata) agreed
to pay the sum of $200,000 (excluding GST) after a period of 60 days. Please refer
to the agreement attached dated 28 June 2008. Skidteck responded on several
occasions asking for purchase order for amounts agreed. Still neither response nor a
purchase order have been received at the time of this document.

The charges are now well overdue and have been outstanding for an excessive period of time, that is beyond the 60 days indicated in the transmittal. We request that Skidteck receive payment in full by 23 December 2008. If this amount ($200,000 excluding GST) that was agreed by both parties (on 28 June 2008) is not paid in full

by 23 December 2008, legal proceedings will commence immediately thereafter”.

26         On 5 December 2008 at 2.15pm, Bates responded: “I am sorry it has taken a few

days to respond to your email but I have been in WA working and my email filter sent
your emails to the ‘junk’ folder. As you are well aware no purchase order has ever
been issued to Skidteck and no works were carried out by Skidteck in relation to

Calistrata”. The balance of the email referred to the invoice for $64,966.60.

27         On 4 December 2008, solicitors Hayes & Associates sent a letter of demand to Calistrata claiming $64,966.60. On 18 December 2008 solicitors Mingos Kay Lawyers on behalf of Calistrata responded to Hayes & Associates in relation to the balance of the claim of $64,966.60 and then continued, “It has also come to our

attention that in separate correspondence, your client is alleging that a further
amount of $220,000 is owing to it, and has forwarded a demand for same in
correspondence dated 5 December 2008 directly to our client. We respectfully
suggest that you seek further detailed instructions from your client in respect to this
alleged debt as this amount was only to arise and was predicated upon the

occurrence of certain conditions precedent, none of which were met by your client”.

28         The principal issue for determination is whether there was an agreement for the payment of $200,000 by Bates in order for Skidmore to retire from Calistrata. The factors relevant to the determination of that issue are as follows:

a.	The versions of the discussion on about 28 May 2008 between Bates, Skidmore and Herden in the evidence given by Skidmore and supported by Bilt.
b.	The denial by Bates that such a discussion occurred and his evidence of a conversation in the car park between himself and Skidmore in which the basis for Skidmore’s retirement from the company was agreed. This conversation was not put to Skidmore in cross-examination by defendants’ counsel.
c.	The failure by any party to call Herden as a witness. Herden appears to be in the defendants’ “camp” and no satisfactory explanation was offered as to why Herden was not called as a witness. Plaintiff’s counsel submitted that, as a

consequence, it should be inferred that if Herden had given evidence his
evidence would not have assisted the defendants and that the Court should

more readily accept the evidence of the plaintiff’s witnesses.

d.	Immediately following 28 May 2008, Mrs Skidmore took steps consistent with an agreement having been reached for Skidmore to retire from the company. She made arrangements for Skidteck’s shares to be transferred to Bates, for Skidmore to retire as a director and for his guarantees to be replaced and for Calistrata to reimburse the start-up costs.
e.	The figure of $200,000 was not referred to in any document until after the meeting on 26 June 2008. This is a surprising omission particularly as a formal document was drawn up in relation to the start-up costs to be
reimbursed (on 14 June 2008) and documents were prepared for the change of directorship and shareholding in Calistrata.
f.	No reasonable explanation was given as to why Bates should offer to pay $200,000 plus GST for Skidmore’s interests in the company. The Company had only been set up the previous month, and Bates had agreed to reimburse Skidmore for his contribution to the start-up costs and to relieve Skidmore from any ongoing liability through the guarantees. On 16 April 2008, Skidmore had contemplated withdrawing from the company because of his concerns about the guarantees he was required to provide.
g.	The first mention of the figure of $200,000 in contemporaneous documents was made following the conversation between Herden, Bates and Skidmore on 26 June 2008. Plaintiff’s counsel submitted that the characterisation of the

payment in the documents as being for “works completed” was a “subterfuge”. The nature of the agreement reached at the meeting on 26 June 2008 and the details of the subterfuge and reason for it were never adequately explained.

Skidmore gave evidence that at some stage in about May 2008 it was
discussed that Calistrata would be paid for work carried out by Skidteck.
Skidmore said he was very uncomfortable about this.

The “subterfuge” (which necessitated the addition of GST to the figure of
$200,000, the requirement for a purchase order and the misleading invoice)
seems to have involved creating the appearance of a transaction whereby
Skidteck had performed work on the Team 45 project as a subcontractor of
Calistrata, without in fact Skidteck having performed any work.

h.

The documents which referred to the $200,000 payment described the reasons for the payment as follows:

i.	“For works completed at the FMG Project” (email Bates to Skidmore 28 June 2008);
ii.	“Purchase orders” were required for the $64,000 and $200,000 invoices (email Skidmore to Bates 29 June 2008);
iii.	“Share of minor works C001 – logistics agreement between Lindsay Bates on 28/06/08” (invoice no. 102 dated 29 June 2008);
iv.	invoice no. 102 was for the agreement “discussed prior but agreed

upon, dated 28 June 2008 which please note that it also includes

share of minor works C001 – logistics” (email Skidmore to Bates dated
3 December 2008 attaching invoice no. 102);

v.           attaching letter of demand for the “agreed amount of $200,000 excl. GST” (email Skidmore to Bates dated 5 December 2008);

vi.          “Correspondence sent from Lindsay Bates, date of transmittal 28 June

2008, where you (Lindsay Bates, the director of Calistrata) agreed to
pay the sum of $200,000 (excl. GST) after a period of 60 days.

Please refer to the agreement attached dated 28 June 2008” (letter of demand Skidteck to Bates dated 5 December 2008).

i.           Mrs Skidmore said that she posted invoice no. 102 to Calistrata at Nottinghill on about 30 June 2008. She said that “in error” the invoice was not sent by email as it ordinarily would have been. The invoice is dated 29 June 2008. Invoice no. 101 for the start-up costs of $64,966.60 is dated 1 July 2008 and a copy was apparently emailed at that time to Calistrata. There was no explanation for the fact that the lower numbered invoice was dated after invoice no. 102. When invoice no. 102 was sent as an attachment to an email to Bates on 3 December 2008, there was nothing to indicate that it had been forwarded earlier.

j. Between mid July and mid December 2008, Bates pursued Skidmore for unpaid Excomm invoices. In his responses, Skidmore made no reference to the alleged sum of $200,000 owing to Skidteck.

Absence of Herden as a witness

29         The following matters suggested that Herden was in the defendant’s “camp”:

a.	From April 2008, there was “ill feeling” between Skidmore and Herden. Their relationship was “very strained”. This continued throughout May and June. On 26 June 2008, Bates arranged a meeting between Skidmore, Herden and himself “with the hope of ‘brokering’ a deal between [Skidmore] and James [Herden]”.
b.	After Skidmore’s retirement from Calistrata, Herden had worked for the company “on a contract basis”. Herden used a Calistrata business card and “if the need arises”, he does work for Bates.
c.	Herden used the titles “director of projects” and “business development manager” in his work for Calistrata.
d.	A financial year forecast for the end of 2007/08 (May and June) and for 2008/09 for Calistrata was prepared by Herden.
e.	Bates had discussed the issues in the present proceeding with Herden.
f.	Bates knew Herden’s current address and telephone number.
g.	The defendants’ solicitors also act for Herden in another proceeding.
h.	It was defendants’ counsel’s decision not to call Herden as a witness, according to Bates.

30         The central allegation in the proceeding was the agreement by the defendants to pay Skidteck $200,000 for Skidmore to retire from Calistrata. The “agreement” principally depended upon a discussion on or about 3 June 2008 involving Skidmore, Bates and Herden. The defendants denied any such agreement. It was to be expected that

Herden would be a material witness at trial. As the case progressed, it was further obvious that he would also be a very important witness in relation to the important meeting on 26 June 2008. It was following this meeting that Bates in his email dated

28 June 2008 first referred to an agreement in relation to $200,000 reached at the
meeting. Bates had proposed the meeting in order to “broker” an agreement between
Skidmore and Herden.

31         A document was produced in evidence (an expense budget for the Team 45 project) which referred to works’ contracts for Calistrata including “minor works C001 – logistics”, the description given in a number of documents to justify the payment of $200,000. This expense budget was apparently prepared by Herden.

32         No satisfactory explanation was given, either in evidence or by defendants’ counsel for the defendants’ failure to call Herden as a witness. In the circumstances, I consider it is appropriate for me to conclude that Herden’s evidence would not have assisted the defendants’ case. I should also more readily accept the evidence of the plaintiff’s witnesses in relation to the matters about which Herden might have given evidence.

Conclusions

33         I must determine the case on the evidence I have heard and the documents that have been tendered. The plaintiff has the onus of proof and must establish its case on the balance of probabilities. I am not, however, satisfied that an agreement was reached for the payment of $200,000 as contended for by the plaintiff. I have reached that conclusion for the following reasons:

a. It seems improbable that Skidmore would be offered any money to retire from the company. In mid April, he made a decision to retire and soon afterwards withdrew it. On 28 May, Skidmore initiated the discussions which led to his

retirement from the company. He was not a reluctant party. He was very manager for the head contractor) involved some impropriety.

unhappy with what he had got himself into and apparently believed that

A suggestion was made by plaintiff’s counsel during the cross-examination of Bates, based on the Calistrata financial year forecast, that by May 2008 the company was established and all Skidmore had to do was “sit tight” and income would flow to the company from which he would receive a director’s salary of $12,000 per month into the indefinite future. Bates gave evidence that it was some months before there had been any financial return to Calistrata, let alone the payment of director’s fees.

The agreement to repay to Skidmore the start-up costs had ensured that Skidbeck was fully compensated for the actual expenses associated with the set-up of the company. These included the deposits paid for the vehicles acquired by the company and global sums as compensation for Mrs Skidmore’s secretarial services and the delivery of the trucks from Perth. It is difficult to see what other compensation Skidmore might have expected.

b.

If any arrangement was reached for the payment of $200,000 on 28 May 2008, the sum was not mentioned in any document until a further arrangement was apparently reached on 26 June 2008.

c.

The nature of the arrangement reached on 26 June is unclear. It is not the agreement relied upon by the plaintiff. However, in this proceeding, the documentation which thereafter referred to the sum of $200,000 tied that payment to an arrangement whereby Skidteck was to invoice Calistrata for works apparently to be performed on the Team 45 project and Calistrata was to pay on that invoice. There was no reference to the sum of $200,000 being the consideration for the transfer of shares in the company. Plaintiff’s counsel said that this was a “subterfuge”. However, the evidence did not explain the nature of the deception involved or why it was thought to be necessary.

34         In the circumstances, the plaintiff’s claim for payment of the sum of $200,000 must fail. The plaintiff is entitled to judgment against the defendants for $21,814.82. Before making final orders, I will hear further from the parties.

Certificate

I certify that the preceding 13 pages are a true copy of the reasons for decision of His

Honour Judge Anderson delivered on 27 May 2010.

Dated: 27 May 2010.

Hannah Christensen

Associate to His Honour Judge Anderson