Cape York Space Agency Pty Ltd, Re [1991] QSC 326

. ,. . r-.... , .:, . r., . .' .. TRANSCRIPT OF PROCEEDINGS State Reporting Bureau, 4th Floor, The Law Courts, George Street, BRJSBANE. 0. 4000 Tel. (07) 227.4360 (Copyright in this transcript is vested in the Crov.,n. Copies thereof must not be made or sold without the written authority · of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION BYRNE J No 722 of 1991 ?r°' IN THE MATTER OF THE CORPORATIONS LAW and ,_o REVISED COPIES ,ISSUED Court Rioporting Bureau Date, 3 I I , o I Cf I ...... IN THE MATTER OF THE CAPE YORK SPACE AGENCY PTY LTD BRISBANE •. DATE 28/10/91 12.05 P.M. JUDGMENT 1 -- 1 of 13 -- ( 10 20 30 40 50 60 281091 JUDGMENT HIS HONOUR: This is an application for winding up. The ground is that the company, Cape York Space Agency Pty Ltd, is insolvent. The evidence shows that the company is indeed unable to pay its debts as they fall due. Insolvency has been clearly proved. Amongst others·,. the · company's debts include liability for unpaid income tax in an amount approaching $50,000. The principal ground relied upon by the company to avoid the winding up is that the substitute applicant tacks standing to seek the winding up. The company's contention is that the applicant has failed to prove that at material times it has been "a creditor" of the company. In May 1988 the parties entered into a form of written agreement for the provision of services by the substitute applicant to the company. The document envisaged that the services would include rnan~9ement, engineering and consultancy. The service~ would be provided~in accordance with the terms of the document and in phases. By section B-1 the services to be provided by Kaiser, as I shall call the substitute applicant, were to be provided in these phases: one, concept validation and criteria definition; two, enhancement of the concept.; three, basic engineering and project financing; and, four, implementation. During the enhancement of the concept phase Kaiser was to Govt. Printer, Old. 2 10 30 60 -- 2 of 13 -- ( 10 20 30 40 so 60 281091 JUDGMENT provide project management and consultant engineering services "as shall be mutually devel,oped and agreed upon". In respect of the third phase, that is to say the basic engineering and project financing.by section B-4 of the contract, Kaiser was to provide "project management consulting and engineering services as shall be mutually developed and agreed upon". Section B-6 made a general provision with respect to the way in which the services were to be provided. The section provides that Kaiser Engineers shall perform "services"· "in accordance with directions received from time to time from the client and must at all times act in good faith to the client". "Services" is defined by the agreement. The correspondence which the parties have exchanged reveals that a substantial number of consultancy services were provided by Kaiser to the company between phases. It isrthe· liability to pay for these services which is in dispute. The dispute arose during the course of Mr O'Shea's submissions on behalf of the company. The material contained in the affidavits read before me otherwise demonstrates that until this applicatio was.called on for hearing the company acknowledged a very substantial liability to Kaiser in respect of the interphase services. On 19 September 1989 the company wrote to Kaiser's managing Govt. Printer. Old. 3 10 20 30 40 50 60 -- 3 of 13 -- ( 10 20 281091 JUDGMENT director. The letter advised that progress of the Spaceport Project at that stage relied on the resolution of a number of issues which were then currently being drafted by the company. The letter contained this advice: "The project management services as defined in our agreement with Kaiser Engineers Australia Pty Ltd since May 1988 are for the time being not required. This instruction will take effect from today's date." The letter went on to propose that consultancy services nevertheless continue to be provided by Kaiser. Those which were not required were of a consulting engineering nature. The letter indicated that there would be "Preparation 30 attendance forthcoming and the negotiations regarding the supply of rockets and ground support equipment assistance in the submissions of the proposal to the company and assistance in presentations to the prospective 'equity holders'." The letter went on to propose that these"consulting engineering t 4b seivi6es only be paid for in accordance with our agreement~. The reference there in context is, plainly enough" :to the written agreement of 6 May 1988. SCT':Je presently i.'1l1Tlaterial qualification was added . . ,, so The letter went on to suggest that work on sev~ral aspects of the project.should be reduced to the lowest possible level consistent with the company's maintaining its options to proceed with the work according to its latest project schedule. The letter concluded by the company's expression of 60 Govt. Printer, Old. 4 10 30 40 60 -- 4 of 13 -- ( J 10 20 30 40 50 60 281091 JUDGMENT appreciation for what it described as "outstanding performance" of Kaiser "on this project to ,date". The proposal in the form communicated by that letter was not entirely satisfactory to Kaiser. Rather ·than communicating its consent to, th·e prdposal, by its letter dated 11 October 1989, Kaiser acknowledged receipt of the l~tter, acknowledged the difficulties being faced by the company and its current needs to reduce project costs as much as possible, and proposed a different form of relationship for the provision of further consulting and management services. The letter proposed what it describes as c9-operation with the company by proposing a new management fee and making other arrangements. It is not necessary for present purposes to set out the details. The letter concluded by asserting that before some cost reduction measures ~o which the letter referred)were implemente agreement would be required on a number of other aspects of the proposal. These included the company's': approval of work plan, schedule and budget defining anticipated activity during "this interim period". I•••' '-· The letter continued{after setting out other details of the proposal) :"On the assumption that this proposal will be acceptable to (company), I have engaged John Sulzbach to work with you at your convenience to establish events and/or Govt. Printer, Old. 5 10 20 30 1 40 50 60 -- 5 of 13 -- 281091 JUDGMENT activities which will further define the interim period and its anticipated duration •••. he will work with you on the other conditions as well. I want to assure you that Kaiser 10 10 20 30 40 50 Engineers Australia Pty Ltd remains totally dedicated to bringing the-Cape York Spaceport Project to operational reality. We share your goals and will continue to strive with you to achieve them." For the company it is said that the consulting services which were provided after that exchange of correspondence cannot have been provided pursuant to the written agreement itself and may well have been provided on the footing that Kaiser was accepting the risk that it would not be paid for further work done in the interim; that is to say, before a plan was developed and embarked upon in respect of phase 3 of the project. Two separate contentions were advanced on the company's behalf. One was that there was no arguable claim to remuneration for work done between phase 2 and phase 3 on the footing that Kaise had accepted the risk that it would not be paid any sum. This was the company's primary position. The alternative was that Kaiser may wel 1 have decided to take on the risk of doing further 'l,- wor .... , such work to be relatively minor in the scale of the project as a whole, until project financing was obtained; with Kaiser's entitlement to payment in the meantime· being dependent on project financing ultimately being obtained. (The cijse has been· ~onducted on bhe .assumption ---=60=----+--------- -------------------- --------- - - Govt. Printer, Old. 6 30 40 60 -- 6 of 13 -- (~ 10 20 30 40 50 60 281091 JUDGMENT that the necessary finance has not yet been obtained.} Now, it might have been expected that Kaiser would support this application by materia.l tending ;to establish directly that the services for which this claim is made, that is to say those between phases 2 and 3 said to have been effected at the direction of the company, were reque.sted in. c.ircumstances ,·. ' ~learly showing ~ithe~_an express or· implied obrigation to pay for it. inference. Govt. Printer, Old. 1 Unhappily the matter was left to 7 10 20 30 40 50 60 -- 7 of 13 -- ( 281091 JUDGMENT In an affidavit of Mr Robbins filed on 24 October, Mr Robbins deposes that Kaiser "continued to provide services in accordan e with the directions received from the company from time to time as w~s required bys B-6 of the contract." The affidavit 10 10 20 30 40 50 60 goes on to assert that those consulting services included, amongst other things, meeting with the supplier of rockets and ground support equipment in Moscow in December 1989, preparations for meetings with the supplier in Montreaux in March.1990, meetings with a supplier in Brisbane in July 1990, and prepara ,ion~ 20 for meetings with a supplier in November 1990. No cross-examination was directed to Mr Robbins in respect of these allegations; and it seems to me tha~ 1 in context,they ought to be understood as indicating a series of directions from the company to Kaiser to provide the services actually rendered. The reference to s B-6 of the contract sees to involve nothing more , than that the nature of the services to be provided were those broadly contemplated for 30 the-contract, and that the services were to be provided in good faith. 40 The affidavit of Mr Robbins goes on to assert that in the firs half of 1990 Kaiser became concerned that it was owed substantial amounts of monies by the company, and in mid July forwarded a statutory demand to the company seeking payment of a substantial sum of money. There was·a deal of correspondence. On 27 July, some nine days or so after the statutory demand had been delivered, the managing director of Kaiser, and Mr M L Edwar<fs, the managing director of the company . Govt. Printer, Old 8 50 -- 8 of 13 -- ( , l 10 20 30 40 so 281091 JUDGMENT signed -'a clocument which recorded their then understanding of arrangements reached with respect to payment by the company to Kaiser of ·its claims. The letter rec.ords "that the payments ·· to your company as invoiced amounting to some $770,000 •.• are defined and agreed by management." The fourth paragraph of 10 the letter contained a promise by the company to pay to Kaiser $25,000. This sum was described in the letter as representing 20 • \! 'hotional interest payment" and $150 j 000 ..irepresenting al 1 fees which may be due and payable to your ~ompany to and including 31 July 1990 11 • There have been subsequent communications between the company and Kaiser which are only consistent with a distinct acknowledgrnent by the company :::,fa liability to Kaiser for a substantial sum of money in respect of the consultancy ind other services to which Mr Robbins has deposed in paragraphs 10 and 11 of his affidavit. For example, on 31 August last year Mr Edwards sent a facsimile transmission to Kaiser's maneging director referring to the delay in implementing arrangements which had previously been agreed for the payment of what is obviously a large sum of money for the compromise of Kaiser's claim for consultancy services. More recently, on 8 May this year, the company's financial. controller sent a facsimile transmission to Kaiser in which this was said, "Obr equity d~bt transaction is proceeding to Govt. Printer, Old. 9 30 40 50 -- 9 of 13 -- ( 10 20 30 40 50 60 281091 -JUDGMENT We therefore propose that CYSA bring its debt current in four equal instalments, the first payable on 3 June 1991 and thereafter bi-monthly until the agreed debt is discharged" (my emphasis). The affidavit of Mr GT Galt filed by leave today is consistent with the view that the services for which the present claim is advanced were provided at the company's direction and in circumstances in which the company must have expected to pay for them. It is, as I have indicated, somewhat unfortunate that the conclusion to which I have finally come is more a matter of inference than direct proof. But I have reached the conclusion on the balance of probabilities that Kaiser has established that it is entitled to standing to prosecute this application seeking the company's winding up. The company also raised against Kaiser a case that the debt it alleges has been extinguished by the company's cross-claim. The company wishes to set up this cross-claim as an equitable set off. The basis of the_alleged set off is the allegation that the company has ·suffered a considerable loss. The loss is said to derive from the taking of documents by Kaiser which Kaiser prepared for the company in accordance with obligations it assumed either under, the contract of 6 May 1988 or pursuant to the subsequent ftirections which have given rise to the claims relied on by Kaiser today. Govt. Printer, Old. 10 10 30 40 60 -- 10 of 13 -- ( ' L 10 20 30 40 so 60 281091 'JUDGMENT These documents are said to have become the property of the company and to have been wrongfully taken away from the company's possession by Kaiser. It is not necessary for present purposes to express a view about the merits of this ·claim. That is because Kaiser, while denying that it has unlawfully removed the company's documents,offers an undertaking, the effect of which is to preserve the documents pending a trial of the company's claim against it. It offers a further undertaking that in the event that the company establishes its title to the documents in question, Kaise:r·.~- wil l deliver them up to the company. In the light of those undertakings there is no prospect that the company,could establish at an early trial an entitlement to damages in .... a. substantial amount. In short, the alleged cross claim is no basis for a conclusion that the applicant is not entitled to maintain the application for a winding q, order. Only one other consideration remains. It was urged on behal of the company that a winding up in any event should not be ordered now on the footing that the delay for a month or so would cause substantial prejudice to the company, but little or no·• prejudice to the applicant. It is also pointed out that·Kaiser is not support~d0by any other creditor in the making of the application for ·the winding up order, and it has been su.hni tted that other major creditors have ,.in the past at least,supported an adjournment. 11 10 20 30 40 50 60 -- 11 of 13 -- 10 20 30 40 50 60 281091 JUDGMENT An adjournment for a month is said to be justified by material exhibited to an affidavit of Dennis Allan Mcilwraith. Mr Mcilwraith, who was the Chief Executive Officer of Essihgtoh International Pty Ltd, exhibits a :letter of intent with· R W -Beck_& Associatei ih relation to the Cape York International Space· Port. Mr Mcilwraith deposes to having been involved in commercial dealings with R W Beck &•\ Associates concerning.the planned construction projects in various p~rts of- the world, including a $225m hydro-electric scheme for Zagreb. He is working with R W Beck in relation to other current projects. He deposes to a belief that R W Beck & Associates has the capacity to arrange project finance for the Cape York Space ·Port ~n the amounts refe~red to in the letter of intent. The letter of parties - obtairii'ng intent and envisages exchanging the information .. and attending one meeting at least to make preparation for entering into a formal~ binding agreement to design and provide construction management finance and constructing the Cape York Space Project. Under the terms of the letter of intent project information is to be exchanged. The letter of intent plainly contemplates that very substantial sums of money might be involved to advance the p~oject. Para 1 contains this agreement, "It is recognised that the required financing for the CYSA project is in the order of $700m Australian to be secured only by the 12 10 30 40 60 -- 12 of 13 -- ( < . ' ' 10 20 30 40 50 60 281091 JUDGMENT project. II In my opinion the prospect that the company may be able to raise finance for the project which, if obtainec;I, would '· , •; enable it to discharge its liab~lity to Kaiser is not a s1.:i'fficient justification for 0deny-1-p.g Kaiser -its prima · faci~ present entitlement to. have the canpany wound up. There will therefore be an order that Cape York Space Agency Pty Ltd be wound up by the Court under the provisions of the Corporation Law and that Philip Gregory Jefferson be appointed the liquidator for the purposes of the winding up. The order will be: upon Kaiser by its counsel .undertaking to preserve and subsequently to deliver to the respondent all files retained or taken by it in the event that a Court of competent jurisdiction determines the titles to such files as retained by the respondent. 13 10 20 30 40 50 60 -- 13 of 13 --