Buildfirst Limited v Bespoke Systems Limited

[2017] NZHC 2971

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2017-409-000794 [2017] NZHC 2971

IN THE MATTER	of Section 290 of the Companies Act 1993
BETWEEN	BUILDFIRST LIMITED Applicant
AND	BESPOKE SYSTEMS LIMITED Respondent

Hearing:	28 November 2017
Appearances:	S T Cottrell and B X Smith for Applicant D M Jackson for Respondent
Judgment:	1 December 2017

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]      On 15 September 2017 the respondent, Bespoke Systems Limited (Bespoke) issued to the applicant, Buildfirst Limited (Buildfirst) a demand under s 289 of the Companies Act 1993.  It required payment of the sum of $7,337.58, being an amount said to be owing under two invoices for the installation of underlay heating systems in two apartments at 2/284 and 3/286 Manchester Street.   Buildfirst applies to set aside this demand.

Legal principles

[2]      If a company fails to comply with a demand under s 289 of the Companies Act a presumption arises that the company is unable to pay its debts.  That, in turn, is a ground on which a creditor may apply to the Court for an order appointing a

liquidator.

BUILDFIRST LTD v BESPOKE SYSTEMS LTD [2017] NZHC 2971 [1 December 2017]

[3]      Section 290 provides that the Court may set aside a statutory demand.  The grounds on which it may do so include there being a substantial dispute whether or not the debt is owing or is due.  In considering an application under s 290 it is not the task of the Court to determine any dispute which may be found to exist.  Its role is confined to determining whether there is or there is not a substantial dispute.   In Industrial Group Ltd v Bakker, the Court of Appeal laid down the way in which the

Court is to approach an application under s 290:1

[24]     We note that the statutory scheme is for applications to set aside statutory demands to be a summary proceeding.  ...  The section calls for a prompt judgment as to whether there is a genuine and substantial dispute.  It is not the task of the Court to resolve the dispute.  The test may be compared with  the  principles  developed  in  cognate  fields  such  as  applications  to remove  caveats, leave to appeal  an  arbitrator’s award  and  opposition to summary judgment.

[25]   … The tight time constraints distinguish the s 290 discretion from that to be exercised on, say, a summary judgment application, where the presence of complex legal issues is not necessarily a bar to a remedy. As with leave to appeal an arbitrator’s award, the hearing should, in the normal course, be short and to the point, and the judgment likewise.

[4]      More recently, in AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) the

Court of Appeal said:2

[22]   It is important to keep in mind the words of the statute.   What the applicant must show is that the dispute it raises has substance; the applicant must explain to the Court what the dispute is; and the dispute so shown must be real and not a fanciful or insubstantial dispute.3   The Court must bear in mind that it is operating in the summary jurisdiction, with the accompanying disadvantages that brings for any applicant.   The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.

The issues

[5]      The debt claimed is for underfloor heating installed in two apartments under construction.  Buildfirst had a management role, but was not the builder.  Buildfirst says  it  did  not  contract  with  Bespoke,  rather the builder of the units  in  which Bespoke installed the heating was the contracting party.  If it did contract, though,

either that contract was varied, or Bespoke is estopped from denying that liability for

1      Industrial Group Ltd v Bakker [2011] NZCA 142 (citations omitted).

2      AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338.

3      Re A Company [1991] BCLC 727 (Ch) at 740 per Harman J.

payment  of  Bespoke’s  account  passed  later  to  the  builder.    In  any  event,  the developer paid Bespoke’s invoices.

[6]      To determine whether there is a substantial dispute on whether the debt is due and owing by Buildfirst, three issues must be decided:

(a)     Has Buildfirst shown it to be arguable that it did not contract with

Bespoke?

(b)If not, has it shown it to be arguable that the contract was varied or that an estoppel arose that would prevent Bespoke claiming against Buildfirst?

(c)     Has Bespoke already been paid?

The facts

[7]      The director of Buildfirst, Mr J C Thornley, swore an affidavit in support of the application.  After acknowledging service of the demand he says that it “appears to relate to building work completed by Bespoke at a six unit apartment development located at 284-286 Manchester Street”.  He says he is familiar with the development because  “it  was  completed  as  a  joint  venture  project  by  a  company  called Manchester Apartments Limited … the joint venture was between another entity associated with me and a joint venture partner”.   He then says that he is not a director of Manchester Apartments Limited (MAL) but is authorised to swear the affidavit on its behalf as well.   He says that Buildfirst is a company he uses to operate various building and construction development projects and to undertake related administrative work.  He says it is not associated with MAL and Buildfirst had no financial or other stake in the development.

[8]      Mr Thornley goes on to say that Buildfirst “did not contract with Bespoke to pay for the work” and that the work has already been paid for in full by MAL, MAL having been invoiced for the work by the builder for the development, Project 1

Design, after it was invoiced by Bespoke.

[9]      Mr Thornley says that Bespoke’s involvement in the development arose after a request by purchasers of one of the units in the development for a variation of their contract to include underfloor hearing.  After that, he says, one of Buildfirst’s employees, a Ms Jess Parker, asked Bespoke to provide a quote for underfloor heating.  That was provided by Bespoke and Ms Parker advised Bespoke “that the quote had been approved” and Bespoke would need to get in touch with the builder. After  setting  out  other  communications  Mr  Thornley  summarises  Buildfirst’s position: “it never intended to contract with Bespoke, it advised Bespoke to make arrangements with Project 1, and it is aware that the developer of the development, MAL, has paid for the Bespoke invoice to Project 1”.

[10]     To assess Mr Thornley’s views, it is necessary to examine documents created at the time Bespoke first became involved.   The starting point is the evidence of Mr Mark Keogan, a director of Bespoke.  Mr Keogan says that in July 2016 he was telephoned by Mr Thornley who introduced himself as a director of Buildfirst and asked him to quote for underfloor heating at the property in question.  On 22 July, the day of this call, he received an email from Mr Thornley. That email reads:

Per my discussion with Mark today, please quote to supply and lay electric underfloor heating (both styles) for the kitchen, living and entrance area in the middle south side unit (2/284 Manchester Street).  Once I have the quote I am happy to forward on to other buyers as an option.  At this stage unit

2/284 are [sic] the unit that have specifically requested it.  The heating will be going under an engineered floating natural timber floor.

We have currently completed the framing for both floors.

[11]     As requested Mr Keogan emailed Mr Thornley quotes for two options for underfloor heating on 25 July, both of which are addressed to Mr Thornley.  A third quote was emailed to him a few days later.  The initial quotes were accompanied by Bespoke’s terms and conditions which provide for payment to be made no later than

20th  of the month of supply.   On all quotes, the “invoice/receipt details” contain

Mr Thornley’s  name  and  Buildfirst’s  address,  with  an  adjacent  request  “please correct any details that appear incorrectly on our quote as appropriate”.  There is no evidence that the invoice/receipt details were amended.

[12]     On 12 September Ms Parker of Buildfirst emailed Mr Keogan saying another owner had sought a quote for unit 2/286 Manchester Street, and advising that the

property was about three weeks from “gib stage” and asking how much lead time they required.  In respect of the quote on unit 2/284, Ms Parker said she was waiting on confirmation “from the customer” before coming back to him.

[13]     On 15 September at 2.38 pm Mr Keogan emailed Ms Parker an updated quote for 2/284 Manchester Street. Ms Parker emailed Mr Keogan thanking him for the  quote  and  asking  him  to  liaise  with  a  Mr  Findlay  at  Project  1  Design  to coordinate installation timeframes.  A week later she sent another email to Bespoke forwarding “confirmation correspondence”.

[14]     On 14 October Mr Frost of Bespoke gave Ms Parker of Buildfirst a quote for unit 3/286.  Except as to amount, it is the same terms as the earlier quotes.  On 20

October Ms Parker advised Mr Frost the quote had been approved.   She gave Mr Frost of Bespoke contact details for the onsite builder/foreman, and in a later email on 27 October referred to “our builder” trying to contact Bespoke about “the 2 quotes we have booked in for the Manchester job”.

[15]     Mr Keogan  says  he had  one telephone discussion  with  Mr  Findlay who explained  to  him  that  he  was  the  builder  and  that  he  should  deal  with  him. Mr Keogan says he was not quite sure what Mr Findlay was saying as the call was “garbled” but he says that at no stage did Mr Findlay tell him that he was in fact the client and that Mr Keogan should address any invoices to him.  He says he did not at any point agree to do so, either with him or with anyone else.   He did not know Mr Findlay, and had not met him.  He did not receive any emails from Mr Findlay and nor did he or Mr Thornley write to him looking to change the terms of the contract he believed he had with Buildfirst.  Bespoke went ahead and did the work as instructed and issued invoices to Buildfirst in February 2017.

[16]     When these were not paid he contacted Buildfirst.  On 4 May a Ms Mackay of  Buildfirst  told  him  that  Bespoke’s  contract  was  with  Project  1  Design.    Mr Keogan says this was the first he had heard of this suggestion, but as he simply wanted to get paid he sent the invoices through to Project 1 Design.   He did not, however, change the invoices or the statements, which remained in the name of Buildfirst.  The invoices were not paid and Project 1 Design went into liquidation in

July.  Although Bespoke made a claim for payment in the liquidation it was then advised by its solicitor that it did not have a claim as its contract was with Buildfirst. It then issued the statutory demand which is the subject of the present application.

[17]     Mr Findlay swore an affidavit which was filed by Buildfirst’s solicitors.  He recalls a conversation with Mr Keogan, but does not recall it being garbled.   He recalls there being “a discussion about who [Bespoke] would be contracting” with but says nothing more of that conversation.  Similarly, he recalls “discussing contract issues” with “a lady in the [Bespoke] office over the phone” but says nothing more on that either.

Discussion

First issue: Has Buildfirst shown it to be arguable that it did not contract with

Bespoke?

[18]     It  is  trite  to  state  that  a  contract  is  formed  when  there  is  an  offer,  and acceptance of it.  In the case of each of the installations for which Bespoke claims Buildfirst is liable, there is a quotation by Bespoke addressed to Buildfirst, given at the instigation of Mr Thornley of Buildfirst.  There is no evidence that Mr Thornley indicated to Bespoke that he was seeking the quote on behalf of any other party. There is no evidence that Bespoke knew of the builder Project 1 Design at the time the quotes were sought or given.   Each quote contains Mr Thornley’s name and Buildfirst’s address in relation to invoicing with a request that any details that may appear to be incorrect should be corrected, which did not occur.   It is clear from emails sent shortly after the quotes were accepted that Bespoke did not know the contact details for the builder until after the contracts had been entered.

[19]     There is some evidence of a discussion between Mr Keogan and Mr Findlay of Project 1 Design, but as can be seen from the summary of the evidence on this above at [15] and [17], the date of the conversation is not given, and Mr Findlay goes only as far as to say that he recalls discussing contract issues with Bespoke, and there being a discussion about who Bespoke contracted with, but that is all.  This evidence is too vague to be of any weight.  Even if this conversation was before the

offers were made, which I think highly unlikely, I find that Bespoke made the offers to Buildfirst alone.

[20]     Equally, it is clear that Buildfirst accepted the quotes. Acceptance is recorded in emails which, again, do not indicate in any way that acceptance is being given on behalf  of  any  other  party.    No  information  was  given  to  Bespoke  to  alter  the invoicing details recorded on the quotes.  Statements that Bespoke should contact the builder or a person on site to make arrangements for installation do not affect the formation of the contract; rather, they are as one would expect in relation to a contract for the supply and installation of a building component at the appropriate time during a building project.

[21]     Mr Thornley’s statements about the contracting parties as recorded in [7] and [8] above do not stand scrutiny when considered in light of contemporaneous documents which he received and which emanated from the office of his company. Even if it was not his intention to contract with Bespoke, no steps were taken to ensure that a contract was entered between Bespoke and another party.  Mr Thornley is correct that  Buildfirst advised  Bespoke to  make arrangements with Project 1

Design, but as I have said, that was in relation to installation.  The emails cannot be construed any other way.

[22]     For these reasons I find that Buildfirst has not established an arguable case that it did not enter contracts for the supply of underfloor heating in respect of which Bespoke now claims payment of its invoices.

Second issue: Has Buildfirst shown it to be arguable that the contract was varied or that an estoppel arose that would prevent Bespoke claiming against Buildfirst?

[23]     Mr Cottrell for Buildfirst argues that there is sufficient material before the Court to  establish  that  there is  a dispute  over  whether,  if  there  was  a contract between Buildfirst and Bespoke for each installation, there was later a variation of that contract, or as he also mentioned, an estoppel against Bespoke in relation to liability for payment.

[24]     He points to a number of facts to support this proposition.  First, he notes that there is no correspondence before the Court between Buildfirst and Bespoke after the initial correspondence.

[25]     Secondly, although Bespoke invoiced Buildfirst for the work done, those invoices showed the post office box number of Project 1.  These invoices were in fact emailed, however, to Buildfirst, and it seems that by the time invoices were due (and Bespoke had been working with Project 1 on the installation) it had been agreed that the invoices would be sent to Project 1 for charging to the client, MAL.  This is recorded in an email from Ms Parker to Mr Findlay on 18 October 2016.  A quantity surveying firm had been engaged for the project, and this firm was billing MAL on behalf of Project 1.   Bespoke’s invoices were included in a progress payment certificate issued by the quantity surveyor on behalf of Project 1 to MAL.  MAL in fact paid this progress payment to Project 1 but Project 1 did not pay any part of the sum it received in respect of Bespoke’s invoices to Bespoke.

[26]     The next point relied on is that Mr Findlay clearly spoke to Bespoke direct about  payment  terms  because  in  response  to  a  question  about  that  issue  from Ms Parker he advised her that [Bespoke] are doing 20th following month so all sorted there”.  Mr Cottrell invited me to infer that this statement refers to the identity of the contracting parties, not to the payment terms, but I am unable to draw this inference. The sentence refers specifically to a date of payment, and responds to a question by Ms Parker “How’d you get on talking to [Bespoke] re repayment terms?”.

[27]     The contract between Buildfirst and Bespoke could not be varied so as to substitute Project 1 in the place of Buildfirst.   That could only be achieved by an assignment of Buildfirst’s rights and obligations under the contract, and the evidence does not lay even the barest foundation for a finding that occurred.   It is not suggested, let alone shown, that the Buildfirst/Bespoke contract was terminated by mutual agreement.

[28]     I take Mr Cottrell’s submission to be that the contract was varied so as to impose Buildfirst’s obligation to pay on Project 1 and release Buildfirst from that obligation.  It is clear that Bespoke was prepared to have its invoices passed on to

MAL through the quantity surveyor, which must have meant that it accepted that payment would be channelled from MAL to Project 1 and then, either via Buildfirst or directly, to its bank account.  In the context of a building project where there is an owner, a builder, a quantity surveyor, a project manager and a subcontractor, I do not consider this to be unusual.  It does not follow that Project 1 assumed a contractual obligation to pay the invoices.

[29]     It  does  not  follow,  either,  that  the  contract  was  varied  so  as  to  release

Buildfirst from its contractual obligation to pay.

[30]     At most, the evidence shows a practical means of payment was agreed to, so the developer MAL paid for the underfloor heating it received and its money was channelled through a professionally controlled payment system to the provider.

[31]     I am also unpersuaded that it is arguable that Bespoke is now estopped from denying that liability to pay its account had passed to Project 1.  Whilst it is, as I have said, arguable that  Bespoke agreed to that method of payment, it is quite another matter to suggest that this payment method was agreed to the exclusion of liability on the part of the original contracting party, Buildfirst.  There is nothing in the material produced to the Court to establish that position on an arguable basis. Nor is it shown to be arguable that Buildfirst relied to its detriment on Bespoke agreeing to have its invoices processed in the way I have described.  Indeed, there is no evidence that Buildfirst altered its position in any way in reliance on Bespoke agreeing to this payment method, whether to its detriment or otherwise.

[32]     For these reasons I find it is not established either that the contract was varied to impose a payment obligation on Project 1 and relieve Buildfirst of that obligation, or that Bespoke is now estopped from claiming payment from Buildfirst.

Third issue: has Bespoke already been paid?

[33]     It is quite clear on the evidence before the Court that Bespoke has not been paid.  Whilst MAL paid Project 1, Project 1 did not pay Bespoke.  Payment by MAL to Project 1 is irrelevant to satisfaction of the contractual obligation by Buildfirst to Bespoke.

Outcome

[34]     The  application  to  set  aside  the  statutory  demand  issued  by  Bespoke  to

Buildfirst on 15 September 2017 is dismissed.

[35]     The  time  for  compliance  with  the  demand  is  extended  to  5.00  pm  on

13 December 2017.

[36]     Buildfirst   will   pay   costs   to   Bespoke   on   a   2B   basis   together   with disbursements fixed by the Registrar.

J G Matthews

Associate Judge

Solicitors:

GCA Lawyers, Christchurch.

Simon Stock Lawyers, Christchurch.