New South Wales Supreme Court CITATION : Byrne Lewis v Colt Tollfab [2009] NSWSC 706 HEARING DATE(S) : 10 July 2009 JUDGMENT DATE : 28 July 2009 JURISDICTION : Equity JUDGMENT OF : Tamberlin AJ 1. The Statutory Demand served on Byrne Lewis Group Pty Limited is set aside. DECISION : 2. The Statutory Demand served on Byrne Lewis Construction Pty Limited is set aside. 3. The defendant is to pay the plaintiffs' costs of the applications to set aside the Statutory Demands outlined in orders 1 and 2 respectively. CATCHWORDS : CORPORATIONS - statutory demand for payment of debt - application to set aside - whether genuine dispute as to existence of debt - dispute as to identity of contracting parties – CONTRACT – whether a contract comes into being between two parties – effect of subsequent conduct – when did the contract come into existence LEGISLATION CITED : Corporations Act 2001 (Cth) CATEGORY : Principal judgment Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 All ER 965 CASES CITED : Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; (2004) 185 FLR 130 1741/2009 Byrne Lewis Construction Pty Limited (Plaintiff) Colt Tollfab Pty Limited (Defendant) PARTIES : 1742/2009 Byrne Lewis Group Pty Limited (Plaintiff) Colt Tollfab Pty Limited ( Defendant) FILE NUMBER(S) : SC 1741/2009; 1742/2009 COUNSEL : L Byrne (Plaintiffs) S A Wells (Defendant) SOLICITORS : Crisp Lawyers (Plaintiffs) Carney Lawyers ( Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST ACTING JUSTICE TAMBERLIN TUESDAY, 28 JULY 2009 1741/2009 BYRNE LEWIS CONSTRUCTION PTY LTD v COLT TOLLFAB PTY LTD 1742/2009 BYRNE LEWIS GROUP PTY LTD v COLT TOLLFAB PTY LTD JUDGMENT 1 HIS HONOUR: In these two matters Byrne Lewis Construction Pty Limited ("Constructions") and Byrne Lewis Group Pty Limited ("Group") have each applied under s 459G of the Corporations Act 2001 (Cth) ("the Act") to set aside a statutory demand served on each of them by Colt Tollfab Pty Limited ("Colt"). 2 Group and Constructions have the same directors, secretaries, registered offices, principal place of business and shareholders and Mr Jim Lewis was at all relevant times a director/secretary and fifty per cent shareholder of each company. The statutory demand served on each company claims an amount of $85,519.50 said to be owed by each company relating to unpaid progress and variation claims in relation to a building project. 3 The case for Group is that it did not contract with Colt and it says that the relevant contract was between Constructions and Colt. Constructions says that it was the contracting party but submits that there is a genuine dispute between it and Colt as to the existence and amount of the claim and it contends that it has an offsetting claim relating to the work which was the subject of the contract. Background 4 Mr Jim Lewis ("Lewis") director and secretary of both companies has filed an affidavit of 2 March 2009. His evidence is that in mid 2007 he sought a quotation from Colt for the supply and installation of glass louvres in respect of a project at Manly comprising five units and one house. 5 On 21 November 2007, he received a facsimile on a letterhead from Colt addressed to "Jim Lewis, Byrne Lewis Group" stating that Colt was pleased to provide him with a revised quotation for the supply and installation of glass louvres to balconies at Manly as detailed in the letter. The pricing was stated to be based on drawings and sketches that had been provided so far. The letter set out details of the louvres and installation requirements. The letter was from Steve Hall, the Sales and Marketing Manager of Colt, and stated that Colt had the capability and experience to deliver a successful outcome and that it looked forward to working with Byrne Lewis on the project. That quotation provided for a lump sum price of $61,845 plus GST. 6 Shortly after receiving the above facsimile a further facsimile was received from Steve Hall addressed to "Jim Lewis" dealing with clarification information on mullions for the Manly project. It referred to the fact that further information had been obtained from Germany in relation the positioning of the motors behind the louvres and matters relating to cover plate size. 7 On 21 November 2007, on a letterhead of Byrne Lewis Construction Pty Ltd, Jim Lewis wrote to Colt for attention of Mr Steve Hall under title: "Bris de Mer" – 188 North Steyne, Manly, 2095 Operable Glass Louvres Works Package as follows: "Dear Steve, We confirm our acceptance of your quotation dated 21st December 2007 for the supply and installation of operable glass louvres to the above project. The scope of the works is as shown on the attached elevation of the building. The agreed price for the works is $61,845.00 + GST. The programme for the works is as shown on Byrne Lewis Construction P/L programme 1.5 dated 27.7.07 titled Brise de Mer Overall Construction Programme. …" There were a number of other matters mentioned and the letter stated that certificates of currency for Workers Compensation and Public Liability were required to be faxed prior to commencement on site and there was reference to a requirement that a copy of a sub-constructor's statement form was required to be completed, signed, and submitted with each progress claim. There were also provisions in relation to retention rates. The letter was signed "Jim Lewis". 8 In this letter of 27 November 2007, there is reference to "special conditions", not mentioned in the quotation, relating to the supply of facilities, power board, rubbish bin and capping by Byrne Lewis Construction Pty Limited, and to Colt providing other documents and equipment not referred to in the quotation. 9 There is also in evidence a undated note from Steve Hall on a Colt letterhead addressed to Jim Lewis which reads: "Enclosed is a signed copy of the contract for the operable glass louvre works as specified in your files. " There is in evidence is a copy of the letter of "acceptance" dated 21 November 2007 which has been initialled on each page by Steve Hall above a handwritten date of "28 November 2007". 10 Later in the course of the project there were tax invoices from Colt addressed to Group together with contract claims. There were also sub-contractors statements regarding Workers Compensation stating that Colt had entered into a contract with Group on which there was no reference to Constructions. 11 On 17 November 2008, on a letterhead of Brise de Mer (the name of the Project) Jim Lewis wrote to Colt for attention of "Mr Fitzgerald" a letter concerning progress payments referring to problems with wiring of louvre movers and access for power supply to the louvres. The letter continued: "We have a sufficient concern at this stage to require the system to be commissioned and fully operational before we can release all of your claim. We will be progressing a proportion of your claim at the end of this week. Please contract me on 0418 2000 067 to coordinate pick up of the cheque." 12 The above letter was followed-up by a fax of 19 November 2008 to Mr Fitzgerald of Colt from Mr Byrne on a letterhead of Constructions referring to 118 North Steyne Manly, the address of the Project which reads as follows: "Further to your telephone conversation with Jim, I have set out below the works that the scissor hoist is totally stopping from being started and completed. This, in turn, is stopping our practical completion and marketing. We have had these works delayed for in excess of 4 weeks so far trying to resolve the electricals. Your electrician has been here on various occasions and our electrician tried on a further three occasions. We have all been very frustrated by this. There is NO provision for wiring the system and no-one seems to know how it is meant to work. The installers have done a good job for you. Jim has spoken about other issues with you. · Waterproofing the slab · Installing the water detention system · Constructing walkways · Building the entrance to the apartments at beachfront · Landscaping · Side fence to Heritage cottage …" 13 Colt responded by saying that they would have installers on the site the following day. However, to complete the works they required a payment of $57,600 representing 80 per cent of the outstanding amounts by 10.00 am. 14 On 20 November 2008, Jim Lewis said that he had conversation with Mr Fitzgerald of Colt wherein Mr Fitzgerald expressed concern about not having received payment. Mr Lewis says that he undertook to provide post-dated cheques which could be held subject to the system being completed, access being provided to motors, and the system being fully operational and that once the system was tested and operational he would tell Mr Fitzgerald that he could present the cheques. He says that Mr Fitzgerald agreed and said that he would be putting the final glass panels up and showing him how the system works and would collect the cheques the next day. 15 Mr Lewis drew two cheques in favour of Colt for $35,000 each and they were given to Mr Fitzgerald on 21 November 2008, on the site, on the basis they were to be held on the terms of the conversation. Mr Lewis says that despite additional work undertaken by Colt the system in respect of apartments was not fully operational as at March 2009 and that there were no access cover plates as required. He says that drawings were never provided to Constructions for approval as required He also says that in January 2009, when Mr Fitzgerald came to the site Mr Lewis informed him that he would be prepared to give a commitment to pay subject to having the system fully commissioned and the motor access problem resolved. 16 There is a dispute as to this conversation and also as to the conversation in which Mr Lewis referred to the two cheques for $35,000 being subject to a condition that the system should be completed and access provided and the requirement that the system should be fully operational. 17 Mr Lewis gave evidence that there are outstanding claims in relation to the inoperability of the louvre system and he estimates that the costs of rectification as being in the amount of $69,700 together with an additional costs relating to delays experienced in rewiring of $464,207.07, which he claims was calculated on the basis of delay in completion for four weeks resulting in additional interest costs on funds borrowed. In addition, he estimates the costs of obtaining certification for the fixed glass louvres including a possible cost of replacement by a third party, as being $25,510 additional to the above amounts. Together with all other costs occasioned by non-compliance, he estimates the total cost of rectifying the louvres as being in excess of $235,556. Legal principles 18 In relation to the formation of the contact in this case the legal principles are well settled. It is necessary to determine the point at which parties have travelled from negotiation to a binding contract. An offer is a communication that a party is prepared to contract on identified terms with another party. The question is usually to be determined objectively by reference to whether a reasonable person would conclude that a binding offer was made. An offer capable of acceptance is to be distinguished from an offer to treat: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 268. 19 In many negotiations the process is not a simple one of a single offer and a clear acceptance. 20 The communications may involve making an offer, followed by numerous counter-offers with an eventual acceptance by conduct or communication. Once acceptance is communicated, provided the terms can reasonably be ascertained, there is a binding contract. Often in cases where there is an extensive exchange of correspondence, the communications must be closely analysed to determine whether, for example, a purported acceptance is really a counter-offer because of a variation in terms or in the identity. The process is described by Denning MR in Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 All ER 965 at 967-969. 21 In determining whether there is a genuine dispute as to the existence or amount of the debt, the subject of the demand, a simple denial is insufficient because there must be material to back up the claim that the amount is disputed. This does not need to be sufficient to establish a case on the balance of probability. The cogency level of proof must be somewhere between a mere claim and proof on the balance of probability. The cases ask whether there is a "plausible contention" requiring investigation, having regard to the nature and extent of the documentation. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 McClelland CJ in Eq said at 787-788, that the expression "genuine dispute": "…connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be', not having 'sufficient prima facie plausibility to merit further investigation as to [its] truth' … or 'a patently feeble legal argument or an assertion of facts unsupported by evidence'". 22 There is a real and significant difference between determining whether there is a genuine dispute and determining the merits or resolving such a dispute. 23 The authorities concerning the requirement of a genuine dispute are helpfully set out in the reasons for judgment of White J in Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527 at [22]-[27]; (2004) 185 FLR 130. Who are the contracting parties? 24 The evidence does not indicate that as at November 2007 either Colt (Mr Hall) or Byrne (Mr Lewis) attached any particular importance as to the precise identity of the entity with which the contract was made. The relevant discussions and communications were between Steve Hall and Jim Lewis leading up to the contract. 25 The quotation of 21 November 2007 was submitted by Colt to Jim Lewis and referred to "Byrne Lewis Group" and not to any particular legal entity within the group. The "clarification" letter of the same date was sent to Jim Lewis. The "acceptance" letter of 21 November was written on the letterhead of Constructions. That "acceptance" letter was in fact a counter-offer because it had additional "special conditions" to the conditions set out in the quote as to the responsibilities of Constructions and Colt. It is significant that some of these contractual obligations were in the form of special conditions on Constructions and did not refer to any obligations being placed on Group. It is also important to note that even if one construes the "quotation" as an offer capable of acceptance which was addressed to Group, rather that an offer to treat, then the so-called "acceptance" was in fact a counter-offer because it was made by a party other than Group. This counter-offer is then followed by the return of a copy of the counter-offer letter initialled by Steve Hall on the date shown as 28 November 2007. There is also an undated letter from Mr Hall which refers to enclosing a signed copy of the contract. 26 Having regard to these considerations there is a powerful argument that the evidence before me indicates a binding contract was entered into on return of the initialled copy between Constructions and Colt. The consequence of the existence of a reasonable argument that there was no contract with Group is that there is a genuine argument that there is no debt by Group which could be the subject of a statutory demand. The critical date for determining who are the parties to the contract is the date when the contract was made. What subsequently transpired, in the circumstances of this case does not determine the identity of the parties to the contract. Colt has pointed to a number of matters occurring after 21 November 2007 which it says point to a contrary conclusion namely that the contract was made between Group and Colt. These are: · The quote of 21 November was sent to "Byrne Lewis Group" not Constructions · The quote was accepted on 21 November by a letter stating that Colt confirmed its acceptance of the quotation dated 21 November · Both Group and Constructions have the same directors, secretary, registered officer and the shareholders hold their shares in the same proportions · The letter of acceptance of 21 November required the defendant to fax Certificates of Currency for Workers Compensation and those statements were provided from time to time along with Progress and Variation claims which referred to a contract having been entered into with "Byrne Lewis Group Pty Limited" · Progress claims and variation claims were issued to Byrne Lewis Group Pty Limited · Prior to commencing these proceedings no dispute was raised that the contract was not with Byrne Lewis Group 27 Notwithstanding the force of these considerations, I do not think they are sufficient to demonstrate that there is no genuine dispute as to the existence or amount of the debt claimed in the statutory demand. 28 Accordingly, because there is a genuine dispute as to whether Group was a contracting party I set aside the statutory notice served on Group. Is there a genuine dispute with Constructions or offsetting claim by it? 29 Colt submits that the Court should be satisfied that there is no genuine dispute between it and Constructions about the existence or amount of the debt to which the demand relates and that Constructions has no off-setting claim within the meaning of s 459H of the Act. 30 Colt relies on a number of matters to support its contention that the dispute alleged by Constructions is not genuine. It refers to the affidavit of Mr Lewis which stated that following 21 November 2008 Colt attended the site and undertook further works in respect of the louvres and demonstrated that the louvres in respect to one apartment did work. This is said to be an acknowledgment by Constructions that the system had been installed and was operational in respect of one of the apartments. The difficulty with this is that the testing only related to one apartment. 31 Secondly, Mr Fitzgerald of Colt evidences on behalf of Colt that final testing and commissioning was carried out on 26 November 2008 and confirmed on 27 November 2008. In relation to this, however, there is a dispute as to whether the work was in fact satisfactory. There is a direct conflict of evidence between Mr Fitzgerald and Mr Lewis as to whether cheques to be handed over were to be given subject to the system being completed, access being provided to the motors and the system being fully operational, or whether they were to be given unconditionally and without reservation. 32 Having regard to the correspondence Colt says that the Court should accept Mr Fitzgerald's evidence in preference to Mr Lewis and should take into account that after the site meeting of 26 November 2008 no further complaints were made. This involves a decision as to credibility and findings as to the terms of these important conversations. 33 The question for the Court is whether there is a genuine dispute. It is not the function of the Court on an application to set aside a statutory notice to determine the merits of the evidence, particularly on a basis involving a direct conflict and a question of credit in circumstances where there has been no opportunity to test the evidence or appraise it on a proper basis. 34 In order to dismiss an application to set aside it is not sufficient to submit that one version of the evidence should be accepted in preference to another. There may be some circumstances where evidence of a party is clearly not to be accepted on its face but that is not this case here. 35 On 13 January 2009, Constructions sent a letter to Mr Fitzgerald advising of additional funding and referring to progress claims. Colt submits that the correspondence and conduct referred to above is inconsistent with there being a genuine dispute or offsetting claim. However, again there is a conflict of evidence as to a conversation on 13 January 2009 between Mr Lewis and Mr Fitzgerald wherein Mr Lewis states that he was only prepared to give a commitment to pay subject to having the system fully commissioned and the motor access problem resolved. The substance of this conversation is denied by Mr Fitzgerald. 36 This further conflict of evidence on a substantial matter needs to be resolved before any dispute can be properly and fully determined supports the conclusion that there is a genuine dispute. 37 Having regard to the above considerations I am not persuaded there is no genuine dispute as to the debt or its amount. 38 In view of this conclusion, it is not necessary to decide whether Constructions has an offsetting claim. 39 I am satisfied that there is a genuine dispute between Constructions and Colt as to the debt referred to in the statutory demand served by Colt and I therefore set aside this statutory demand served on Constructions. 40 In relation to the statutory demand served on Group, that company contends that costs should be paid by Colt on an indemnity basis because it was clearly the case that there was never any contract between Group and Colt because the evidence was that any contractual arrangements were with Constructions. 41 However, having regard to the lack of precision as to identity of the contracting parties on both sides and taking into account subsequent dealings and the discussions between the parties I am not persuaded that there is anything in the circumstances of this case which calls for anything other than the usual order as to costs. I therefore do not accept the application for costs on an indemnity basis in respect of the statutory demand served on Group. 42 The orders of the Court therefore are as follows: 1. The Statutory Demand served on Byrne Lewis Group Pty Limited is set aside. 2. Statutory Demand served on Byrne Lewis Construction Pty Limited is set aside. 3. The defendant is to pay the plaintiff's costs of the applications to set aside the Statutory Demands outlined in orders 1 and 2 respectively. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.