Femley Pty Limited v Salken Engineering Pty Limited [1999] NSWSC 668

New South Wales Supreme Court CITATION : Femley Pty Limited v Salken Engineering Pty Limited [1999] NSWSC 668 CURRENT JURISDICTION : Equity Division FILE NUMBER(S) : 1531/99 HEARING DATE(S) : 2 July 1999 JUDGMENT DATE : 2 July 1999

Femley Pty Limited (P1) PARTIES : Taylor Lea Pty Limited (P2) Kehoe Pty Limited (P3) Salken Engineering (D) JUDGMENT OF : Master McLaughlin

COUNSEL : Mr. C. R. C. Newlinds (P) Mr. F. Donohoe (D) SOLICITORS : Dibbs Crowther & Osborne (P) Henry Davis York (D) CATCHWORDS : ACTS CITED : Corporations Law DECISION :

SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

MASTER McLAUGHLIN

Thursday, 2 July 1999

1531/99 FEMLEY PTY LIMITED & ORS -v- SALKEN ENGINEERING PTY LIMITED JUDGMENT

1 MASTER: Femley Pty Limited, Taylor Lea Pty Limited and Keogh Pty Limited each claim an order that the creditor's statutory demand served by the defendant Salken Engineering Pty Limited on that plaintiff on 2 February 1999 be set aside pursuant to section 459G of the Corporations Law. 2 Three separate statutory demands were served, one upon each of the plaintiff companies. Each of those demands is in identical form. Each claims payment by the plaintiff upon which it was served of the amount of $80,000. That amount is described in the schedule to the demand as follows: Progress payment owed pursuant to agreement dated on or about 11 November 1998 for which the company has been invoiced $80,000. 3 A number of procedural aspects to this matter were the subject of a judgment delivered by Santow J on 15 April 1999. 4 The consequence of his Honour's decision on those aspects is that the only question which is before the Court in the present hearing is whether the plaintiff companies have established, as is contemplated by section 459H(1), that there is a genuine dispute between the company and the defendant about the existence or amount of the debt to which the demand relates. 5 The plaintiff companies are the partners in a partnership known as ARQ Sydney Partnership (referred to as "ARQ"). The agreement referred to in the schedule is an agreement which emerges from correspondence passing between the defendant and Mr Christopher Curtis in November 1998. 6 Mr Curtis is a director of Taylor Lea Pty Limited, the first plaintiff, and acts on behalf of the partnership in its dealings with the defendant. 7 The partnership is in the process of completing the development of an entertainment venue at 16 Flinders Street, Taylor Square in Sydney. 8 The arrangement which was the subject of the correspondence between the defendant and Mr Curtis in November 1998 related to the construction and supply by the defendant of what has been referred to as a lighting grid structure for that entertainment venue. 9 I should here record that both at the time when the hearing of this matter was fixed to heard today before me and at the commencement of today's hearing, I stated, and had it recorded, that I am acquainted with Mr Curtis, who is a practising barrister. That fact did not occasion any problem for any of the parties to the proceedings to my hearing the matter. 10 The letter dated 6 November 1998 from the defendant, to Mr Curtis, referred to the total cost of the work, the subject of the letter, being in a total amount of $207,320.00. Provision was made for a deposit of 25 per cent of the total amount, such deposit to be in an amount of $51,830 being, "required prior to the commencement of the undertaking being for securement of US sourced service and equipment and also as working capital for the development of locally designed product type equipment and resources". 11 That letter also provided, "Upon the successful completion and acceptance of the design product device and prior to installation, a further 25 per cent of the above total will be payable". 12 Although not specified in the statutory demand, the $80,000 claimed therein was, during the course of the hearing, identified to Counsel for the defendant as comprising two components. The first of those two components is in an amount of $30,000 and is in a distinct amount, being the balance of the deposit referred to in the letter of 6 November 1998. 13 Although that letter refers to a deposit of $51,830, a subsequent variation in what was to be performed by the defendant resulted in the defendant adopting a total price for the work of $200,000 rather than $207,820. In consequence therefore, the defendant calculated the deposit. It was identified as being 25 per cent of $200,000, that is $50,000. 14 In December 1998 an amount of $20,000 was paid by the plaintiffs to the defendant. The process of identification of the basis for the payment of that amount and whether it constituted part of the deposit or might be characterised in some other fashion, has not been conceded by the plaintiffs. 15 Nevertheless, the defendant has chosen to treat that payment as being part of the $50,000 deposit. In consequence, therefore, the defendant asserts that the balance of the deposit in an amount of $30,000 is payable. 16 The other component of the $80,000 is an amount of $50,000. That amount is claimed as being the further 25 per cent of the $200,000 which would become payable upon the successful completion and acceptance of the design product device. 17 In proceedings such as the present, it is not necessary for the Court to express a concluded view as to whether or not one party or another at a final hearing would be successful. The Court is required by subsection (1) of section 459H of the Corporations Law only to be satisfied of either or both of the following matters: that there is a genuine dispute between the company and the respondent about the existence or the amount of debt to which the demand relates; or that the company has an off-setting claim. 18 There is abundant evidence in the present case that the design product type of the lighting grid structure was a matter which was the subject of dispute between the parties and that no such design product type was accepted by the plaintiffs. 19 Although the defendant did not concede the existence of a dispute, nevertheless, the submissions made by the defendant that there was no genuine dispute in that regard were of a somewhat formal nature. 20 I am satisfied that there is a genuine dispute concerning the component of the demand in the amount of $50,000 representing the payment of 25 per cent of $200,000 to which the defendant would be entitled upon the successful completion and acceptance of the design product types. 21 There remains to be considered the other component, being $30,000, asserted by the defendant to be the balance of the deposit. 22 In the correspondence which constituted the arrangement between the parties in November 1998, there was reference to cladding of the lighting grid structure and there was reference to panelling of the lighting grid structure. It was asserted by the plaintiffs that the agreed price included panelling but did not include cladding of the structure. 23 On the other hand, it was asserted by the defendant that neither panelling nor cladding was included. There was a further complication to this aspect of panelling or cladding in that the phrase "cladding" was, so it was suggested on behalf of the defendant, meant to encompass the concept of external covering for the structure, that is, that the phrase would have included what the plaintiff regarded as panelling. 24 It has been submitted on behalf of the plaintiff that because the parties meant different things in their reference to cladding and panelling (both phrases being used in the correspondence at various points), no binding contract came into existence between the parties; and that, if no binding contract came into effect, then the provisions in the correspondence relating to the payment of a deposit did not come into existence and thus no deposit was payable. 25 It seems to me that each of the parties acted as if there were a binding agreement between them. Certainly the correspondence between them was upon that footing. The present defendant has instituted separate proceedings, being proceedings 1467 of 1999, against the present plaintiffs seeking specific performance of the contract. 26 As a final hearing, I am satisfied that the Court will certainly conclude that there was in existence an agreement between the parties and if necessary will construe that agreement in relation to requirements for cladding or for panelling and give to those phrases appropriate constructions. 27 I do not accept the submission of the plaintiffs that, in consequence of the parties meaning different things by those phrases, no enforceable contract came into existence. I do not consider that submission to be one which is properly arguable. In those circumstances, that submission does not preclude the plaintiffs from being liable for the payment of a deposit. 28 The next submission made on behalf of the plaintiffs is that it is arguable that, properly construed, the contract required the defendant to construct the grid with panelling, with the consequence that, if the defendant did not do so, then the plaintiffs would be entitled to damages. 29 It was submitted that the two claims, that of the defendant for wrongful termination by the plaintiffs of the contract (that claim being the subject of the specific performance aspect to which I have already referred) and any claim for damages by the present plaintiffs against the defendant, are so inexplicably bound up as to entitle the present plaintiffs to an equitable set-off. There is no further quantification of damages to which the plaintiffs might, if ultimately successful, be entitled, although it is submitted that, in a total development costing $6 million, any such damages would be likely to exceed the amount of $30,000, being the balance of the deposit which the defendant is here claiming. I will return to the question of damages shortly. 30 The next ground upon which the plaintiffs submit that they are not liable to pay any part of the deposit is that, if the payment of 25 per cent described as the deposit in the letter of 6 November 1998 is a true deposit and is not, in reality, a progress payment then, if the plaintiffs have validly terminated the contract which they purported to do, that deposit is repayable to them. 31 The plaintiffs purported to terminate the contract for breach by the defendant. The alleged breaches are referred to in the letter of 21 January 1999 from the solicitors for the plaintiffs to the solicitors for the defendant. 32 Those breaches included the issues, to which I have already adverted, relating to, firstly, the obligation of the defendant to provide panelling for the grid and the question whether that panelling was encompassed in the phrase cladding; and, secondly, the failure of the defendant to give any firm commitment as to the state of completion of its work. 33 It is not necessary for me to be persuaded that the plaintiffs will be ultimately successful in their assertion that they validly terminated the contract upon the ground of those breaches. It is necessary for me only to be satisfied that it is arguable that they may ultimately be successful. 34 I am satisfied that the asserted breaches in relation to the questions of panelling and cladding and in relation to the failure of the defendant to give a commitment as to a date for completion of the contract are arguably matters which would justify termination of the contract. 35 If so, then any deposit which might already have been paid becomes repayable to the plaintiffs; and if the deposit has not been paid, then there would be no liability to pay it if the plaintiffs had validly terminated the contract. 36 It was also submitted on behalf of the plaintiffs that the asserted delay on the part of the defendant in the building and installation of the structure would justify termination of the contract and a claim for damages, or at least damages for the delay. 37 However, it would appear that the site did not become available to the defendant until 25 January 1999, whilst the plaintiff had already purported on 22 January 1999 to terminate the contract. In those circumstances, the matter of delay does not seem to me to be an arguable ground. But, as I have already indicated, the failure of the defendant to give a firm commitment as to completion date is an arguable ground for the termination of the contract. 38 The final matter relates to the question of damages. That is the question whether, even if the defendant were entitled to the balance of the deposit (being the amount of $30,000), any arguable entitlement of the plaintiffs to damages would equal or exceed that amount. 39 It was submitted on behalf of the defendant that, since there was a reference to a quotation for $7,580 for panelling, that was the most which the plaintiffs could receive by way of damages for the failure of the defendant in that regard if the defendant were ultimately held liable to provide that panelling. 40 The quotation does not contain details of the panelling to show it is identical to the panelling which might have been the subject of the agreement with the defendant. 41 However, Mr Mesner on behalf of the defendant agreed in cross- examination agreed that the cost of the panelling could be in the vicinity of $40,000. As I have already indicated, it is not necessary for me to be satisfied that the plaintiff would, of necessity, establish an entitlement to $40,000 by way of damages for the panelling, but it is certainly arguable the plaintiff could establish such an amount. That amount exceeds the amount of $30,000 which is the balance of the deposit. 42 Accordingly, it is my conclusion that there is a genuine dispute as to the totality of the amount claimed in the statutory demand, and I propose therefore to make an order in the terms of prayer 1 in the summons. 43 [DISCUSSION RE COSTS.] 44 I make the following orders: 1. I make an order as in prayer 1 in the summons. 2. I order that the defendant pay the costs of the plaintiffs. 3. I reserve the plaintiffs liberty to apply on seven days' notice to the defendant and to any other person affected thereby for variation of order 2 hereof, such liberty to be exercised within fourteen days hereof. **********