185L6 Pty Ltd v Strata Corporation 07176 Inc - [2011] SASC 164

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal from a Master)
185L6 PTY LTD v STRATA CORPORATION 07176 INC
[2011] SASC 164
Judgment of The Honourable Justice Blue
4 October 2011
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - SUPPORTING AFFIDAVIT - REQUIREMENTS FOR
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND - GENUINE DISPUTE AS TO INDEBTEDNESS - OFFSETTING AND OTHER LIKE CLAIMS - GENERALLY
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND - GENUINE DISPUTE AS TO INDEBTEDNESS - ASSESSING GENUINENESS - GENERALLY
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND - FOR DEFECT OR SOME OTHER REASON - SOME OTHER REASON
Appeal from a decision of a Master. The Master refused to set aside the demand but reduced the amount of the demand by $1.
Whether the Court can receive a second affidavit filed outside the 21 day time period - whether the company has an off-setting claim exceeding the amount of the demand - whether the company has established loss - whether the Master erred in fixing the off-setting claim at a nominal amount - whether there is a genuine dispute as to the existence of the debt - whether there is some other reason to set aside the demand - whether there was a valid application pursuant to s 459G.
Held: The Master erred in ruling the second affidavit could not be received and in setting a nominal amount ($1) for the offsetting claim as the cause of action for breach of duty necessarily requires actual loss. Appeal otherwise dismissed: no question of the offsetting claim demonstrated; no genuine dispute demonstrated or any other reason to set aside the demand.
Corporations Act 2001 (Cth) s 459G, s 459J, s 759G; Strata Titles Act 1986 (SA) s 40, s 41, s 41A, referred to.
Bentham Management Pty Ltd v Union Finance Pty Ltd (2007) 247 LSJS 103; Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd (2005) 23 ACLC 1,266; Endeavour Film Management Pty Ltd v Fox Studios Australia Pty Ltd [2003] NSWSC 1056; John Shearer Ltd v GEHL Company (1995) 60 FCR 136; Zenaust Imports Pty Ltd v Alembic Chemicals Works Co Ltd (1998) 28 ACSR 465, applied.
Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; Chippendale Printing Co Pty Ltd v Commissioner of Taxation (1995) 55 FCR 562; D & S Group of Companies Pty Ltd v O'Connor Investments Pty Ltd (1997) 15 ACLC 1794; David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265; Energy Equity Corporation v Sinedie Pty Ltd (2001) 166 FLR 179; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; Federico's Restaurant Pty Ltd v Warwick Entertainment Centre Pty Ltd (1995) 18 ACSR 702; Fejo v Northern Territory (1998) 195 CLR 96; Financial Solutions Australasia Pty Ltd v Predella Pty Ltd (2002) 26 WAR 306; Genesis Management Services Pty Ltd v Soniclean Pty Ltd (2005) 240 LSJS 383; Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452; Hardel Pty Ltd v Burrell & Family Pty Ltd (2009) 103 SASR 408; Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 13 ACSR 455; Macleay Nominees v Belle Property East Pty Ltd [2001] NSWSC 743; Mayaman Developments Pty Ltd v TQ Constructions Pty Ltd [2009] QSC 144; Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd (in liq) [2001] WASCA 360; Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; Re Louisbridge Pty Ltd [1994] 2 Qd R 144; Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451; SMEC International Pty Ltd v CEMS Engineering Inc (2001) 162 FLR 383; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226; Torrens Aloha Pty Ltd v San Modern Painting Pty Ltd (2001) 19 ACLC 755; TQM Design & Construct Pty Ltd v KCL Developments Pty Ltd (2011) 5 BFRA 179; Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294, considered.

185L6 PTY LTD v STRATA CORPORATION 07176 INC
[2011] SASC 164
Appeal from a Master

BLUE J. Strata Corporation 07176 Inc (“Strata Co”) served a statutory demand on 185L6 Pty Ltd (“Level 6 Co”).
Level 6 Co applied to set aside the demand pursuant to s 759G of the Corporations Act 2001 (Cth) (“the Act”).
A Master refused to set aside the demand, but reduced the amount of the demand by $1.
Level 6 Co appeals against that decision.
The Facts
On 16 February 2011, Strata Co served on Level 6 Co a statutory demand (“the Demand”) and supporting affidavit. The Demand required payment within 21 days of $147,649.91 being strata fees and expenses/outgoings in respect of the calendar years 2008 to 2011 inclusive (“the Debt”).
On 7 March 2011, Level 6 Co filed and served an application to set aside the Demand and an affidavit by its director Mr Hilton (“the first affidavit”).
On 19 May 2011, Level 6 Co filed and served a further affidavit by Mr Hilton (“the second affidavit”). The Master rejected the tender of that affidavit, principally on the basis that Level 6 Co was precluded by s 459G (because it was served outside the 21 day period) from relying upon it. That rejection is one of the grounds of appeal.
The first affidavit, which verifies the statement of claim in the District Court action exhibited thereto, deposes to the following relevant matters.
1.Strata Co is the strata corporation in relation to a multi-level office building at 185 Victoria Square, Adelaide.
2.In mid-2002, Level 6 Co purchased a portion (“Level 6”) of level 6 of the building and thereby became unit holder number 6 in Strata Co (holding 8.5% of the units). Level 6 comprised professional serviced offices, which were occupied by various tenants.
3.Since mid-2002, there has been an integrated air conditioning system in the building which is common property (“the old system”).
4.In 2005, Strata Co proposed to Level 6 Co (and I infer all other unit holders) that the old system be replaced by a semi-independent air conditioning system for Level 6 (and I infer all other units) connected to new common property air conditioning plant (“the new system”).
5.Strata Co has not installed the new system needed to support the semi‑independent air conditioning system which has been installed by Level 6 Co.
6.Strata Co has not properly maintained the old system.
7.The conduct of Strata Co in not installing the new system and not properly maintaining the old system was in breach of a duty of care owed by Strata Co to Level 6 Co.
8.Level 6 Co has lost tenants and rental income and suffered a reduction in the capital value of Level 6.
9.On 7 March 2011, Level 6 Co issued an action in the District Court against Strata Co seeking (among other things) damages for loss of rental income, and damages for loss of capital value to be assessed.
10.In the District Court action, Level 6 Co also sought particulars of, and an accounting for, expenditure incurred and charges rendered by Strata Co pursuant to s 40 and s 41 of the Strata Titles Act 1988 (SA).
11.Level 6 Co has a set-off and counterclaim for damages against Strata Co equal to or greater than $147,649.91.
Rejection of the second affidavit
The first issue is whether the Master erred in rejecting the second affidavit.
General legal principles
Section 459G, and Division 3 of Part 5, were introduced into the Act with effect from 23 June 1993.
Section 459G provides that a company “may only” apply for an order setting aside a statutory demand by filing and serving within 21 days:
1.an application for such an order; and
2.an affidavit supporting the application.
In David Grant & Co Pty Ltd v Westpac Banking Corporation,[1] three companies filed and served applications and affidavits seeking to set aside statutory demands which had been served 22 days earlier. The High Court held that the court had no jurisdiction to entertain the applications, saying at 277:
The phrase ‘an application may only be made within 21 days’ should be read as a whole. The source of the term ‘may only’ is to define the jurisdiction of the court by imposing a requirement as to time as an essential condition of the new right conferred by s 459G. An integer or element of the right created by s 459G is its exercise by application made within the time specified. ... It is a condition of the gift in sub-s (1) of s 459G that sub-s (2) be observed and, unless this is so, the gift can never take effect. The same is true of sub-s (3).
[1] (1995) 184 CLR 265.
The High Court did not address the question of jurisdiction in the event that an application and affidavit were filed within the requisite 21 day period but were deficient.
One of the earliest decisions on s 459G was by Hayne J, deciding four related cases in Texel Pty Ltd v Commonwealth Bank of Australia[2] and Mibor Investments Pty Ltd and Others v Commonwealth Bank of Australia.[3]
[2] [1994] 2 VR 298.
[3] [1994] 2 VR 290.
In Texel, the company made an application 27 days after service of the statutory demand and Hayne J, applying similar reasoning to that subsequently adopted by the High Court in David, held that the court had no jurisdiction to hear the matter. In Mibor and Others, each company filed and served an application and affidavit within 21 days, and then subsequent affidavits outside that period. In those cases, Hayne J said at 296:
The bank contended that in determining whether there is a genuine dispute I am confined to looking at the affidavit evidence filed with the application to set aside the demand. It is to be noted that the section requires the application to be filed and served within a limited time and that that application must be accompanied by an affidavit in support. However, I do not read this as limiting the applicant to the material which it is able to gather together in the 21 day period permitted by the Act.
It is now clearly established that (subject to constraints considered below) a company is not precluded by s 459G per se from relying upon affidavit material filed outside the 21 day period.[4]
[4] Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451 at 467 per Beazley J; Re Louisbridge Pty Ltd [1994] 2 Qd R 144 at 145 per Ryan J; Graywinter Properties Pty Ltd v Gas and Fuel Corporation Superannuation Fund (1996) 70 FCR 452 at 460 per Sundberg J, followed and applied in Bentham Management Pty Ltd v Union Finance Pty Ltd (2007) 247 LSJS 103; [2007] SASC 42 at [24] per Debelle J (Doyle CJ and Perry J agreeing).
As to constraints:
1.there is one line of authority to the effect that, to be a “supporting affidavit”, the original affidavit must disclose material facts on which the applicant intends to rely to show a genuine dispute, but, if it does so, the jurisdiction of the court is enlivened and subsequent affidavits can be relied upon (perhaps without further limitation) (“the minimum requirements test”);[5]
2.there is another line of authority to the effect that, while a later affidavit may adduce further evidence in support of grounds raised in the initial affidavit, the later affidavit cannot introduce a new ground on which to set aside the demand (“the fresh grounds test”).[6]
[5] Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226 at 247 per Lockhart J; Re Louisbridge Pty Ltd [1994] 2 Qd R 144 at 145 per Ryan J; Graywinter Properties Pty Ltd v Gas and Fuel Corporations Superannuation Fund (1996) 70 FCR 452 at 459 per Sundberg J; SMEC International Pty Ltd v CEMS Engineering Inc (2001) 162 FLR 383; [2001] NSWSC 459 at [16]-[20] per Austin J; Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd (in liq) [2001] WASCA 360 at [21]-[22] per Wallwork J (Steytler J and Pidgeon AUJ agreeing).
[6] D & S Group of Companies Pty Ltd v O’Connor Investments Pty Ltd (1997) 15 ACLC 1794 at 1798 per Perry J; Energy Equity Corporation v Sinedie Pty Ltd (2001) 166 FLR 179 at [25]-[29] per Wallwork J (Steytler J and Olsson A-UJ agreeing); Genesis Management Services Pty Ltd v Soniclean Pty Ltd (2005) 240 LSJS 383; [2005] SASC 224 at [55]-[59] per Perry J (Doyle CJ and Sulan J agreeing).
In Bentham Management Pty Ltd v Union Finance Pty Ltd,[7] having referred to these two different lines of authority, the Full Court said:
In the particular circumstances of this case it is not necessary to decide between these two lines of authority because, for the reasons which follow, the supplementary affidavit does no more than adduce further evidence in support of the ground in the initial affidavit that there is no loan agreement between the parties.
[7] (2007) 247 LSJS 103 at [24] per Debelle J (Doyle CJ and Perry J agreeing).
If I needed to consider the question from first principles based on the language and purpose of Division 3 of Part 5.4, I would have some reservations about the fresh grounds test as defining the jurisdiction of the court. If I needed to consider whether binding appellate authority[8] determines the question, I would need to consider what was said by the Full Court in Genesis Management Services Pty Ltd v Soniclean Pty Ltd[9] at [55]-[59] compared to Bentham Management at [24], and also what was said by the Western Australian Full Court in Energy Equity Corporation Ltd[10] at [29] compared to Financial Solutions Australasia Pty Ltd v Predella Pty Ltd at [21].[11]
[8] See Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492.
[9] (2005) 240 LSJS 383 at [55]-[59] per Perry J (Doyle CJ and Sulan J agreeing).
[10] (2001) 166 FLR 179 per Wallwork J (Steytler J and Olsson A-UJ agreeing).
[11] (2002) 26 WAR 306; [2002] WASCA 51 at [21] per Parker J (Anderson and Scott JJ agreeing).
However, I do not need to consider further the question posed in Bentham Management at paragraph [18] above. This is because:
1.in relation to the minimum requirements test, Strata Co expressly concedes that the first affidavit was a “supporting affidavit” within the meaning of s 459G, and that the court’s jurisdiction to set aside on the ground of an offsetting claim (as well as the other grounds identified) had been validly invoked; and
2.in relation to the fresh grounds test, Strata Co does not contend that the second affidavit raises any additional grounds beyond those identified in his original affidavit.
Quantification of an Offsetting Claim
The argument put by Strata Co, and accepted by the Master, in opposing the reception of the second affidavit, was that the first affidavit had not quantified the cross-claim (or setoff), and that it was not competent for Level 6 Co to do so in an affidavit filed outside the 21 day period.
In Zenaust Imports Pty Ltd v Alembic Chemicals Works Co Ltd,[12] the original supporting affidavit stated simply that the plaintiff had an offset claim as a result of which the defendant was indebted to the plaintiff on balance of account. There was no reference to quantum beyond this. Santow J said at 470:
‘Balance of account’ is self-evidently the account the subject of the statutory demand. While it would have been preferable for the affidavit to have said so explicitly, I do not consider that the applicant has failed to do so in the present context sufficiently to satisfy the requirements for ‘an affidavit supporting the application’ within s 459G(3)(a) of the Corporations Law.
[12] (1998) 28 ACSR 465.
In Endeavour Film Management Pty Ltd v Fox Studios Australia Pty Ltd,[13] the original affidavit stated simply that damages caused by breach of contract by the other party were greater than the amount claimed. There was no reference to quantum beyond this. The company sought to adduce further evidence quantifying the claim outside the 21 day period. A Master rejected the application. Gzell J held that the Master erred, and said at [10]-[11]:
The allegation having been made in the initial affidavit, it may be supplemented (Graywinter Properties …). Furthermore, the sufficiency of the evidence with respect to the amount of an offsetting claim is to be determined at the time the application is heard by the court and not when the application is filed …
If the learned Master was saying that evidence of damage could not be expanded upon in later affidavits then, with respect, he misdirected himself.
[13] [2003] NSWSC 1056
In Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd,[14] the original affidavit said that the company had suffered loss due to defective wine, and had an offsetting claim, but said nothing at all about the quantum of that claim or whether it exceeded the debt. Gzell J said:
[20]The offsetting total is the difficulty in this case, because there is nothing in the affidavit in support that gives any indication of the quantum of the offsetting claim …
[26]In my view, the task required of the court by the Corporations Act 2001 (Cth), s 459H(2) requires evidence to be put on within the statutory 21-day period enabling the Court to make a determination of the offsetting total. That means that some evidence of quantum must be contained in the affidavit to enable the Court to take that course …
[28]… In my view it is insufficient if it does not contain material from which a Court … can make an estimate of the amount of an offsetting claim …
[31]That does not mean that a party is required to swear to matters of final proof. What it does require is sufficient material indicating the nature of the offsetting claim and the way in which it is calculated to enable the statutory exercise under the Corporations Act 2001 (Cth), s 459H(2) to be carried out by the Court.
[14] (2005) 23 ACLC 1,266; [2005] NSWSC 638.
In each of these three cases, the court approached quantum as an aspect of the minimum requirements test. Where the deponent of the original supporting affidavit deposed to quantum exceeding the debt, it was held to be sufficient, and where he did not, it was held to be insufficient, to permit the court to receive a subsequent affidavit on quantum.
In Mayaman Developments Pty Ltd v TQ Constructions Pty Ltd,[15] the original affidavit deposed to a cross-claim, assessed by an expert, in the sum of $2,403,034.75. In a subsequent affidavit filed outside the 21 day period, the expert deposed to a higher claim of at least $4,768,470.77. Daubney J held at [23] that the company was confined to the original cross-claim of $2.4 million and could not rely upon the later increased amount.
[15] [2009] QSC 144.
In that case, while Daubney J at [22] quoted extensively from the judgment of Gzell J in Broke Hills, his decision appears to involve an application, and an extension, of the fresh grounds test as opposed to the minimum requirements test (which had been applied by Gzell J in Broke Hills and Endeavour Film Management and by Santow J in Zenaust). The extra step was that the quantum could not be increased in a subsequent affidavit even though no new ground of defence or of cross-claim was being introduced. I have some reservations whether the fresh grounds test encompasses this extra step taken by Daubney J, but it is not necessary to decide that question because the facts of this case are materially different.
For the following reasons, I accept the contention by Level 6 Co that the first affidavit sufficiently deposed to quantum so as not to preclude, as a matter of jurisdiction, reliance on the second affidavit in respect of the issue whether Level 6 Co had a (genuine) offsetting claim.

First, as it is common ground that Level 6 Co had validly invoked the jurisdiction of the court in respect of the offsetting claim and there was no issue of a new ground being raised by the second affidavit, that disposes of the issue as to the degree of specification of quantum of the offsetting claim necessary in the first affidavit.
Secondly, the facts of the present case are similar to those in Zenaust and Endeavour Film Management. In both cases, the original affidavit deposed merely to the quantum of the offsetting claim being “greater than” the amount claimed without further specification. By contrast, in Broke Hills there was no reference at all in the original affidavit to the quantum of the claim (whether by reference to the quantum of the debt or otherwise) and in Mayaman Developments, the original affidavit referred to a specific quantum, less than the debt, whereas the subsequent affidavit referred to a much greater quantum, greater than the debt.
Thirdly, previous cases have established that the original affidavit can set out facts as opposed to evidence, and does not need to prove those facts, as that proof can be achieved by subsequent affidavits.[16]
[16] See eg Graywinter Properties (1996) 70 FCR 452 at 460 per Sundberg J; Energy Equity Corporation v Sinidie Pty Ltd (2001) 166 FLR 179 at [17] per Wellwork J (Steytler J and Olsson AUJ agreeing).
Accordingly, the Master erred in rejecting the second affidavit.
Merely because the court has jurisdiction to receive a subsequent affidavit does not necessarily mean that it should exercise its discretion to receive it notwithstanding any delay in producing it. The court needs to assess the timing, context and reasons for any delay in producing the affidavit and any prejudice.
However, in the present case, Strata Co does not argue on appeal that the second affidavit should be rejected in the exercise of the court’s discretion.
Accordingly, I must consider afresh the question of off-setting claim based on both affidavits.
Off-setting Claim
The second issue is whether Level 6 established that it has an off-setting claim for a sum exceeding the amount of the Demand.
Legal principles
As to the approach to be taken in assessing whether the court is satisfied that the company has an offsetting claim,[17] the cases appear to establish the following principles.
1.The question is analogous to that on an interlocutory injunction,[18] which the High Court has described as whether there is a serious question to be tried[19] or a prima facie case.[20]
2.The claim must be put forward in good faith.[21]
3.The grounds for the claim must be real and not spurious, frivolous, illusory, fanciful or misconceived.[22]
4.The claim must be sufficiently plausible to merit further investigation.[23]
[17] Or indeed whether there is a genuine dispute as to the existence or amount of the debt.
[18] Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 per McLelland CJ; Federico’s Restaurant Pty Ltd v Warwick Entertainment Centre Pty Ltd (1995) 18 ACSR 702 at 706 per Lehane J; Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 at [27]-[28] per Owen J (Pidgeon and Wallwork JJ agreeing); Bentham Management Pty Ltd v Union Finance Pty Ltd (2007) 247 LSJS 103 at [14] per Debelle J (Doyle CJ and Perry J agreeing).
[19] See eg Fejo v Northern Territory (1998) 195 CLR 96; [1998] HCA 58; at [26] per Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ.
[20] See eg Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622-623 per Kitto, Taylor, Menzies and Owen JJ; Australian Broadcasting Corporation v O’Neil (2006) 227 CLR 57; [2006] HCA 45 at [65]-[71] per Gummow and Hayne JJ (see also at [19] per Gleeson CJ and Crennan J).
[21] John Shearer Ltd v GEHL Company (1995) 60 FCR 136 at 143, 148 per von Doussa, Hill and Tamberlin JJ; Mcleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 at [18] per Palmer J; Bentham Management Pty Ltd v Union Finance Pty Ltd (2007) 247 LSJS 103 at [14] per Debelle J (Doyle CJ and Perry J agreeing); Hardel Pty Ltd v Burrell and Family Pty Ltd (2009) 103 SASR 408; [2009] SASC 77; at [49] per Kourakis J (Nyland and David JJ agreeing).
[22] Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464 per Northrop, Merkl and Goldberg JJ; Hardel Pty Ltd Burrell and Family Pty Ltd (2009) 103 SASR 408 at [49] per Kourakis J (Nyland and David JJ agreeing).
[23] Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669 at 671 per McClelland CJ; Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd (in liq) [2001] WASCA 360 at [18] per Wallwork J (Steytler J and Pidgeon AUJ agreeing); Hardel Pty Ltd v Burrell and Family Pty Ltd (2009) 103 SASR 408 at [49] per Kourakis J (Nyland and David JJ agreeing).
The facts
The second affidavit exhibits evidence of the following further matters.
1.The first mention of air conditioning in the exhibits to the affidavit is in the minutes of a meeting of Strata Co in July 2005, at which a proposal to upgrade the air conditioning (to the new system) was discussed.
2.The second affidavit exhibits a selection of minutes of meetings thereafter, which are not complete. They appear to show ongoing discussion about a new system right through to 2010, without any final decision being made.
3.Between September and November 2006, there were a series of emails between Mr Hilton and one particular tenant in which the tenant complained about the deferral of new air conditioning works and the old air conditioning system not working properly. On 30 March 2007, that tenant gave notice that it would not renew its lease and would vacate on 30 April 2007.
4.Between November 2009 and February 2010 and again between October 2010 and January 2011, there were a series of emails between Mr Hilton and Strata Co’s manager concerning overheating on Level 6.
5.As at 31 March 2010, Level 6 Co was owed $379,500 (exclusive of GST) by Hilser Pty Ltd (“Hilser”), which was the head lessee of Level 6.
6.On 31 March 2010, Level 6 Co wrote off the Hilser debt.
7.Hilser was a company associated with Mr Hilton (I infer this because Mr Hilton wrote to Strata Co’s manager on behalf of Hilser). Hilser appears to have sub-let various offices on Level 6 to various sub-tenants.
Loss of rental income
On appeal, Level 6 Co identifies the offsetting claim as involving loss of rental income, for the purposes of s 459H, as being a sub-set of the total loss of rent caused by air conditioning issues pleaded in the District Court action, which is a specific loss of $379,500 from Hilser (as opposed to other losses of rental).
Strata Co argues that Level 6 Co has not adduced any evidence of causation of that loss by reason of any breach by Strata Co in relation to air conditioning. In broad terms, I accept that submission.
In relation to Strata Co not proceeding with the proposal to install a new air conditioning system:
1.neither of Mr Hilton’s two affidavits nor the statement of claim in the District Court action identify how and when Strata Co was in breach of a duty of care to Level 6 Co by reason of not proceeding with the proposal;
2.there is no assertion or evidence that it was ever agreed that this would occur, or that for some other reason Strata Co owed to Level 6 Co a duty to install a new air conditioning system (at a very substantial capital cost);
3.in any event, as observed by the Master at [12] of his reasons, there is virtually no evidence at all as to how many (sub) tenants there were, the rent which they were paying, whether they refused or failed to pay rent on account of the air conditioning issues or otherwise, whether they left because of air conditioning issues, or when (if at all) and for what period any offices were vacant as a result;
4.as to the rent due by the head-lessee, Hilser, there is no evidence of the period to which the rent related or that the failure by Hilser to pay rent was caused (either directly or indirectly) by air conditioning issues, and there is no evidence as to why the debt due by Hilser to Level 6 Co was written off.
In relation to the old air conditioning system not working properly, there is evidence that this occurred but, again, there is no evidence that this caused Hilser not to pay rent to Level 6 Co.
In these circumstances, Level 6 Co has failed to establish a serious question to be tried or a prima facie case (however the test be phrased) in relation to this head of loss.
Further, given the absence of any such evidence or explanation, Strata Co has failed to establish that its claim for the loss of the Hilser rent is bona fide or genuine (within the meaning of that term as described by the Federal Court in John Shearer Ltd[24]).
[24] (1995) 60 FCR 136 at 143, 148 per von Doussa, Hill and Tamberlin JJ.
Loss of capital value
The statement of claim in the District Court action pleads a number of other complaints, in addition to those about air conditioning, including failure by Strata Co:
1.to comply with a notice issued by Adelaide City Council in December 1997 that the building did not comply with fire safety requirements;
2.to rectify a water leak which occurred in 2005/2006;
3.to provide dedicated keys (as opposed to master keys) to the toilets on Level 6.
In the second affidavit, Mr Hilton says that Level 6 Co has suffered a loss of capital value due to the fact that Level 6 is not air conditioned, was subject to water leaks and did not comply with the Adelaide Council’s fire safety regulations. He assesses this at between $150,000 and $200,000. He says that these failings resulted in lower rental due to tenants not being willing to rent offices or pay full rental for them. He does not provide any detail thereof.
This claim is dependent upon establishing (to the requisite degree) a loss of rent, which has not been done for the reasons given above. Moreover, a claim for loss of capital value would need to establish more than loss of past rent, namely either a loss of rental capacity or at least a loss impacting on the sale price of Level 6 by Level 6 Co.
Moreover, the statement of claim itself does not plead that the alleged breaches, other than those relating to air conditioning, caused any loss of rental income, loss of capital value or loss, and in any event, there is no evidence of any such loss.
Conclusion
Accordingly, Level 6 Co has failed to establish a genuine off-setting claim, either in the sum of $529,500 or at all.
Reduction by $1
The third issue involves the order made by the Master in connection with the off-setting claim.
The Master at [17] of his Reasons set the offsetting claim at a nominal amount of $1. Level 6 Co argues that, if (contrary to its principal contention) no quantum of the off-setting claim were established, the Master erred in so doing and ought not to have fixed any amount. I accept that submission.
In Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2),[25] the company established (on the requisite test) that it had an offsetting claim for damages for trespass arising from the allegedly invalid appointment of a receiver, but did not establish any quantum of loss. Young J said at 462:
The company would receive only nominal damages for trespass because no other damages have been hinted at in the evidence. Accordingly, I value the amount of the cross-claim at $1.
[25] (1994) 13 ACSR 455.
In so doing, Young J was recognising that the tort of trespass (unlike breach of duty of care) does not require actual damage as an essential element of the cause of action, and, in the absence of proof of actual damage, nominal damages of $1 would be awarded.
In Torrens Aloha Pty Ltd v Sand Modern Painting Pty Ltd,[26] the company established an offsetting claim for breach of contract, but did not establish any actual damage. Santow J at [35]-[36] followed the approach in Jesseron Holdings, and fixed the quantum of the offsetting claim at a nominal $1. Again, the cause of action for breach of contract does not require actual damage, and nominal damages of $1 would be awarded in the absence of proof of actual damage.
[26] (2001 19 ACLC 755; [2001] NSWSC 227.
The Master cited Torrens Aloha as authority for the approach which he adopted. However, as the cause of action for breach of duty of care requires actual loss as an essential element, that authority was not applicable and the Master erred.
Genuine Dispute as to Debt
The fourth set of issues is whether Level 6 Co demonstrated a genuine dispute as to the existence (or amount) of the Debt.
Set-off
The originating process and the original affidavit relied upon a set-off of the claim for loss of rent and capital value to give rise to a genuine dispute as to the existence of the debt as an alternative to its being an offsetting claim.
This was not specifically argued by Level 6 Co on appeal. Assuming that the claim is capable at law of being subject to equitable setoff, this ground of setting aside suffers from the same problems as the offsetting claim ground addressed above.
Interest
The statement of claim in the District Court action pleaded that Strata Co had charged interest, but had not provided particulars relating to the interest rate charged, the basis for charging interest or how the interest was calculated. The relief sought included an order that Strata Co provide particulars and an accounting in respect of (amongst other things) interest pursuant to s 41 of the Strata Titles Act.
The second affidavit quantifies the interest component of the debt (being interest charged from February 2009 to January 2011) at $23,225.50. He says that he has not been provided with particulars of the interest rate applied or the calculation of the interest.
However, documents exhibited to that affidavit show that he had been informed in November 2005 and again in October 2007 that the interest rate was 15% per annum calculated daily on payments not received within 14 days from the due date. There is no suggestion or evidence that Level 6 Co ever requested particulars of the precise calculation of the interest prior to instituting the District Court action on 7 March 2011, despite the fact that the documents exhibited to the second affidavit show that Level 6 Co had been charged interest on overdue levies as early as October 2005.
In these circumstances, Level 6 Co has failed to establish a genuine dispute.
Allocation of payments to charges in dispute
The statement of claim in the District Court action alleges that Strata Co has (or may have) applied payments made by Level 6 Co to charges which were in dispute, and seeks an accounting of all charges rendered over the last two financial years pursuant to s 41 of the Strata Titles Act. The second affidavit says that Strata Co has incorrectly allocated payments to costs which were and remain in dispute. However, Mr Hilton gives no identification whatsoever of what items are in dispute or why, over what period or in what amounts. Nor does he suggest that there had been any request prior to 7 March 2011 for particulars or an accounting in this respect.
In these circumstances, Level 6 Co has failed to establish a genuine dispute.
Conclusion
I agree with the Master that Level 6 Co failed to establish a genuine dispute as to the existence or amount of the Debt.
Other Reasons to Set Aside the Demand
The fifth set of issues is whether there was some other reason why the Demand should be set aside pursuant to s 459J(1)(b) of the Act.
Section 459J merely empowers the court, in its discretion, to set aside the demand whereas s 459H is mandatory in requiring the court to set aside the demand if it is satisfied that there is a genuine dispute about the existence of the debt or the company has an offsetting claim in an amount eclipsing the debt to the extent of all but the statutory minimum.
Level 6 Co relies upon five reasons (either independently or in conjunction) why the Demand should be set aside:
1.that there is a genuine dispute as to the debt and a genuine offsetting claim.
Even if this could be relied upon under s 459J as opposed to s 459H, Level 6 Co fails to establish either matter for the reasons given above.
2.that s 41A of the Strata Titles Act provides for a mechanism for the resolution of disputes, which has been invoked by Level 6 Co in the District Court action.
Section 41A vests jurisdiction in the Magistrates Court and (with its permission) the District Court in respect of (amongst other things) any dispute between a strata corporation and a member in relation to any aspect of the occupation or use of a strata unit.
The jurisdiction of the Magistrates Court and the District Court pursuant to s 41A is not radically different from their ordinary jurisdiction in respect of disputes. If the mere institution of a District Court action in this case comprised a reason why the Demand should be set aside, the same reasoning would appear to apply to any institution of substantive proceedings by a company in a court of competent jurisdiction. In the present case, the District Court action was only instituted after service of the statutory demand. In the circumstances, the mere institution of that action does not comprise a reason to set aside the Demand.
3.that s 41 of the Strata Titles Act imposes a mandatory statutory obligation upon a strata corporation to provide particulars upon request by a unit holder, and Level 6 Co in the District Court action is seeking such particulars and an accounting regarding the levies imposed.
There is no suggestion or evidence that Level 6 Co had sought any such particulars or accounting prior to 7 March 2011 when the District Court action was instituted, being after service of the statutory demand. In those circumstances, this does not provide a reason to set aside the Demand.
4.an alleged lack of particularity in the Demand.
The Demand itself does provide a breakdown of the total debt by calendar year as between strata fees and expenses/outgoings, and it is apparent from exhibit 4 to the second affidavit that, prior to service of the Demand, Level 6 Co had received a detailed monthly statement setting out details of each invoice which comprised the debt. Such statements of account appear to have been issued on a monthly basis over several years. Accordingly, this does not comprise a reason to set aside the demand.
5.that Level 6 Co is solvent.
In the original affidavit, Mr Hilton says:
The Plaintiff is currently solvent and can meet its debts as and when they fall due.
This is little more than assertion, because Mr Hilton does not depose to any facts by reason of which Level 6 Co is solvent. Nor does he identify, for example, whether he is taking into account the alleged debt due to Strata Co or not.
In any event, it is well established that mere solvency is not in itself a reason to set aside a demand, although it might be a matter taken into account in relation to another reason to set aside the demand.[27]
[27] Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 55 FCR 562 at 574-578 per Lindgren J.
Conclusion
I agree with the Master that none of the five matters identified by Level 6 Co, either alone or in conjunction, constitute a reason to set aside the demand.
Declaration that No Valid Application Made
By the notice of appeal, Level 6 Co seeks, in the alternative to the statutory demand being set aside, a declaration that there was no valid application pursuant to s 459G of the Corporation Act.
Level 6 Co refers to the decision of the New South Wales Court of Appeal in TQM Design & Construct Pty Ltd v KCL Developments Pty Ltd.[28] In that case, a purported application under s 459G had been made by two companies jointly to set aside two separate statutory demands, and the application had been held in previous proceedings to be invalid for that reason.
[28] (2001) BFRA 179; [2011] NSWCA 7.

In the meantime, the statutory time limit under s 459C for the creditor to institute winding up proceedings (three months after 21 days after service of the statutory demand) had expired. The companies sought and obtained an injunction to restrain the creditor from instituting winding up proceedings in reliance upon the statutory demands. The Court of Appeal upheld that injunction, on the basis that time had commenced to run under s 459C 21 days after service of the demand because the purported application to set aside made within the 21 day period had been invalid.
Level 6 Co argues that the same reasoning applies in the present case.
However, I have held that the application in this case did validly invoke the jurisdiction of the court, and hence the necessary sub-stratum for Level 6 Co’s contention does not exist.
In any event, it is not appropriate to grant a declaration of the type sought on an application to set aside a statutory demand under s 459G. If the contention by Level 6 Co had been sustainable, that would have been a matter to be decided in subsequent proceedings and not the s 459G proceedings.
Conclusion
For the above reasons, I would set aside paragraph 1 of the order dated 23 June 2011, but otherwise dismiss the appeal.