185L6 Pty Ltd v Strata Corporation 07176 INC - [2011] SASC 94

Supreme Court of South Australia
(Civil)
185L6 PTY LTD v STRATA CORPORATION 07176 INC
[2011] SASC 94
Reasons of Judge Lunn a Master of the Supreme Court
14 June 2011
CORPORATIONS
Application to set aside a statutory demand - plaintiff alleges genuine disputes and offsetting claims - no evidence in supporting affidavit filed within the 21 days to quantify any such disputes or claims - second affidavit filed outside the 21 days to quantify the claims rejected - no basis on evidence to fix the offsetting claims at greater than a nominal $1 - demand reduced by $1 - otherwise application dismissed.

185L6 PTY LTD v STRATA CORPORATION 07176 INC
[2011] SASC 94
JUDGE LUNN:
Reasons on plaintiff’s application to set aside a statutory demand

The multi-storey building at 185 Victoria Square, Adelaide, is subject to a strata plan. The defendant is the strata corporation. In 2002 the defendant purchased Unit 6, which comprised a portion of Level 6 of the building. It has leased out portions of Unit 6 as professional serviced offices.
On 16 February 2011 the defendant served a statutory demand under s 459E of the Corporations Act 2001 (“the Act”) on the plaintiff for a debt of $147,649.91, being strata fees and outgoings payable in respect of Unit 6 between 15 August 2008 and 15 January 2011. On 7 March 2011 the plaintiff instituted this action seeking to set aside that statutory demand. The Summons was supported by an affidavit of Mr Hilton, the sole director of the plaintiff, (“the Affidavit”).
On 7 March 2011 the plaintiff also instituted an action in the District Court (DCCIV-11-474) against the defendant seeking relief which will be referred to below.
At the first return of the Summons in this action on 15 April 2011 counsel for the defendant informed me that no answering affidavit would be filed and that the defendant intended to rely upon the plaintiff not having in the Affidavit sufficiently quantified its alleged genuine dispute and offsetting claim. The solicitor for the plaintiff did not give any indication at that hearing that the plaintiff would file any further affidavit. I adjourned the matter to 19 May 2011 at 10.00am for argument. At about 9.30am on 19 May the plaintiff filed a further affidavit of Mr Hilton (“the second Affidavit”), which, with its seven exhibits, totalled 251 pages.[1] The defendant’s counsel did not seek any adjournment to enable the defendant to respond to the second Affidavit, but submitted that its contents were largely inadmissible. The question of its admissibility was then argued. I held it to be wholly inadmissible. My reasons for doing so are set out below. The application to set aside the demand was then argued on the basis that the only evidence before me was that contained in the Affidavit and its exhibits.
[1] The plaintiff had attempted to file this affidavit at about midday on 18 May, but it had been rejected by the Registry for defects in its form.
In the Affidavit Mr Hilton pledged his oath to the truth of the matters asserted in the Statement of Claim filed in the District Court action, which was exhibited to his Affidavit.[2] Apart from this verification of the Statement of Claim, the Affidavit contained no other evidence of facts relevant to establishing a genuine dispute or an offsetting claim. Mr Hilton’s belief about these issues is not evidence in support of them.
[2] It was unclear whether he could depose to all of the contents of that Statement of Claim of his own knowledge. No basis was provided under 6R 162(2) for him to give information and belief evidence. However, the defendant’s counsel did not take any point on this.
Section 459H of the Act provides:
(1)This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a)that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b)that the company has an offsetting claim.
(2)The Court must calculate the substantiated amount of the demand in accordance with the formula:
where:
admitted total means:
(a)the admitted amount of the debt; or
(b)the total of the respective admitted amounts of the debts;
as the case requires, to which the demand relates.
offsetting total means:
(a)if the Court is satisfied that the company has only one offsetting claim—the amount of that claim; or
(b)if the Court is satisfied that the company has 2 or more offsetting claims—the total of the amounts of those claims; or
(c)otherwise—a nil amount.
(3)If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.
(4)If the substantiated amount is at least as great as the statutory minimum, the Court may make an order:
(a)varying the demand as specified in the order; and
(b)declaring the demand to have had effect, as so varied, as from when the demand was served on the company.
(5)In this section:
admitted amount, in relation to a debt, means:
(a)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt—a nil amount; or
(b)if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt—so much of that amount as the Court is satisfied is not the subject of such a dispute; or
(c)otherwise—the amount of the debt.
offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set‑off or cross‑demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
respondent means the person who served the demand on the company.
The criterion for a genuine dispute is that it must be found to be bona fide and truly existing in fact and that the grounds for alleging it are real and not spurious, hypothetical or misconceived.[3] It must be a dispute which has sufficient prima facie plausibility to merit further investigation.[4] The test for whether a sufficient offsetting claim exists is the same as that for a genuine dispute.[5] The onus is on the plaintiff to show that there is a genuine dispute or offsetting claim.[6]
[3]    Bentham Management Pty Ltd v Union Finance Pty Ltd (2007) 247 LSJS 103.
[4]    Hardel Pty Ltd v Burrell & Family Pty Ltd (2009) 103 SASR 408.
[5]    Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 96 SASR 269.
[6]    Cooloola Dairies Pty Ltd v National Food and Milk Ltd (2004) 211 ALR 293.
The Statement of Claim pleads in fairly general terms a number of breaches of duty by the defendant in relation to the plaintiff and Unit 6. In summary, these breaches are:
·Not having complied with a fire audit issued in 1997 by the Corporation of Adelaide and having made misrepresentations to the plaintiff about its effect;
·Not having properly maintained the air-conditioning equipment of the building which was supposed to service Unit 6;[7]
·Taking 12 months to repair a water leak which adversely affected Unit 6 in and after May 2005;
·Failing to provide full particulars of interest charged to the plaintiff and apparently of levies made on all unit holders;
·Not providing appropriate keys to the toilets in the common area;
·Failing to keep proper records of accounts;
·Incorrectly invoicing the plaintiff for charges which were not payable, but which the plaintiff paid.
[7] Although it is not expressly pleaded, the inference seems to be that it has not provided any air-conditioning at all.
The prayer for relief sought:
The plaintiffs seek the following orders:
1 Damages for loss of rental income to be assessed;
2 Damages for loss of the plaintiff’s loss of Capital value in Unit 6 to be assessed;
The balance of the prayer for relief was for relief under s 41A of the Strata Titles Act 1988 which related to providing proper accounting and orders for the defendant to fulfil its obligations to the plaintiff, but it does not contain any express liquidated or unliquidated monetary claims which could be the basis of a genuine dispute or an offsetting claim under s 459H.
Of crucial significance in this matter is that neither the Affidavit nor the Statement of Claim refer to any amount of money or any basis upon which the plaintiff’s alleged losses from breaches of duty by the defendant could be quantified in monetary terms. Nowhere is there a single reference to an amount of money.
There is no evidence at all in relation to the damages for the loss of rental income, of how many tenants there were, the amounts of rent which they were paying, when they respectively left and for what periods the previously rented out portions of Unit 6 have been unoccupied. No correspondence was exhibited, and thus there is no prior quantification of this claim for loss of rental income. There is no basis on the evidence to infer that any such loss from loss of rental was substantial rather than minimal.
Likewise, there is no evidence about what the plaintiff’s alleged loss of capital value in Unit 6 might be. There is no evidence of what it paid for Unit 6. There is no evidence giving any indication of its current value or what its current value might have been if the defendant had not breached its obligations. It is impossible to know whether the allegation of such a loss is any more than fanciful.
Part of the relief sought under s 41A was an account. Presumably in such an accounting, if it is ordered, the plaintiff would be given credits for payments which it had made to the defendant but which it had not been legally liable to pay. However, there is no evidence of what were the amounts of any of these payments. Thus, even if the plaintiff was to be completely successful on such an account, and to have an order made on it in its favour for all it claimed, there is no indication of what the amount payable might be.
The Statement of Claim pleads the plaintiff mitigated its loss from the failure of the defendant to provide air-conditioning. It has taken some steps to install its own air-conditioning plant in Unit 6, although apparently this is not yet completed. Presumably the plaintiff must know what this has cost it, and something about what the future work is expected to cost. Even if it was pleaded as a head of damage in the Statement of Claim, which it is not, there is no indication of what any offsetting claim arising from it might amount to.
The deposition by Mr Hilton in the Affidavit that there was a genuine dispute to the whole of the debt claimed by the defendant is not admissible evidence that there is a genuine dispute for the purposes of s 459H. It is for me, and not Mr Hilton, to reach the conclusion whether there is such a genuine dispute.
While I accept that the plaintiff has made out that it has possible causes of action against the defendant which could form the basis of a genuine dispute by way of set-off or an offsetting claim under s 459H, it has not discharged the onus on it to show that the amounts of those set-offs or offsetting claims are any more than nominal. In such cases the proper course is for the Court to set the offsetting claim at a nominal amount of $1.[8]
[8] Torrens Aloha Pty Ltd v San Modern Painting Pty Ltd, Santow J, Supreme Court of New South Wales, 27 March 2011, Judgment No [2001 NSW SC 227].
Counsel for the plaintiff submitted that it was not necessary for there to be any evidence about the quantification of the claim before there could be a finding of a sufficient offsetting claim greater than the demand. She relied upon the following passage from the judgment of Perry J, on behalf of the Full Court, in Genesis Management Services Pty Ltd v Soni Clean Pty Ltd:[9]
52 On reflection, that may be pitching the onus too high. There may be cases where it is evident that very substantial damages, clearly exceeding the admitted total within the meaning of s 459H(2), are the subject of a genuine offsetting claim, even although a figure, even a broad estimate, cannot be put on the offsetting claim.
53 The approach of Lehane J in Federico’s Restaurant Pty Ltd v Warwick Entertainment Centre Pty Ltd⁷ is apposite. That case concerned a statutory demand for amounts outstanding for rent due in respect of leased premises. On an application to set aside the demand, the applicant, the lessee, asserted an offsetting claim exceeding the demand. Wildly fluctuating figures as to its value were suggested.
54 Looking at the matter broadly, Lehane J concluded that there was “… an offsetting claim the amount of which, at least arguably, exceeds the amount of the debt claimed in the statutory demand”. He ordered that the statutory demand be set aside without ascribing a specific amount to the offsetting claim.
⁷ (1995) 18 ACSR 702 at 710.
[9] [2005] 240 LSJS 383 and the case cited by him in that passage at [390]
I accept that there will be a class of cases, of which Frederico’s Restaurant Pty Ltd v Warwick Entertainment Centre Pty Ltd was one, where from all the circumstances the Court could properly draw an inference that the amount of damages flowing from the alleged causes of actions on which the offsetting claim was based is likely to exceed the amount of the demand. However, this would seem to be an exceptional situation, as the general run of cases on s 459H talk in terms of evidence being needed about quantification. It is not this case. For the reasons given above, there is no good reason to infer that any damages payable by the defendant from the matters pleaded in the District Court Statement of Claim would amount to anything like $147,649. I reject the submission.
Reasons for rejecting the second Affidavit
It is settled law that a plaintiff seeking to set aside a demand under s 459G of the Act must depose to the facts on which all of the grounds relied upon to set aside the demand are based in affidavits filed within the 21 day period provided by s 459G[10].
[10] Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 21 ACSR 581.
Where some factual basis for a ground to set aside the demand has been laid in the supporting affidavits filed within the 21 days, supplementary facts supporting that ground can be deposed to in affidavits filed after the 21 days.[11] However, on the authorities the dividing line between where the supporting affidavits filed within the 21 days can be supplemented by subsequent affidavits dealing with damages is unclear.
[11] Bentham Management Pty Ltd v Union Finance Pty Ltd above.
I confine my survey of the authorities on the point to those where there was no evidence in the initial supporting affidavits to quantify the amounts relied upon for genuine disputes or offsetting claims under s 459H. That is the position here with the Affidavit and its exhibits. There is a clear line of interstate authority that in such a situation a supplementary affidavit outside the 21 days should not be permitted to give evidence to quantify the claim.
In a majority decision in the Full Court of Western Australia in Royal Premier Pty Ltd v Teleske[12] Ipp J said at [57]:
There is another supervening and fundamental problem with the appellant’s contentions, namely, there is no evidence of any damages that the appellant might have suffered in consequence of the alleged negligence or misleading or deceptive conduct on the part of the respondent. Of course, at this stage, it is not necessary for evidence as to damages to be given in meticulous detail. But there must be at least some material upon which the court can conclude that some damage has been sustained and which will enable the court to make a reasonable assessment as to the amount thereof. In this case, however, there is simply no way of determining whether damage was suffered by the appellant in consequence of the alleged negligence or misleading or deceptive conduct, and there is no evidentiary material from which damage suffered by the appellant can be calculated. This absence of evidence as to damage is itself fatal to the appellant’s arguments.
[12] 28 February 2001, [2001] WASC 48.
In Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd[13] Gzell J of the Supreme Court of New South Wales said:
26 In my view, the task required of a court by … 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 It was submitted that an affidavit in support that is more than a mere assertion but less than final proof is insufficient. In my view it is insufficient if it does not contain material from which a Court, in a case under … s 459H(1)(b), can make an estimate of the amount of an offsetting claim.
[13] 24 June 2005, [2005] NSWSC 638.
In Mayaman Developments PtyLtd v TQ Constructions Pty Ltd[14] Daubney J, after, citing with approval what Gzell J had said in Broke Hills Estate Pty Ltd, stated:
[20] The difficulty for the applicant, however, is that this quantum of offsetting amount is derived from evidence of Mr Ganter which was filed and served for the first time only long after the 21 days period had expired.
…
[23] In my view, the same considerations apply in the present case. Whist the material filed within the 21 day period indicated the nature of the offsetting claim, it certainly did not contain anything like the calculations to enable the statutory exercise under the Corporations Act to be carried out by the Court in the manner now contended for by the applicant in reliance on the subsequent report of Mr Ganter.
[14] 12 June 2001, [2009] QSC 144,
The plaintiff’s counsel submitted that the approach taken by Perry J in Genesis Management Services Pty Ltd above meant that once facts supporting the causes of action relied upon for the genuine dispute or the offsetting claim have been deposed to in an affidavit filed within time, any supplementary evidence about quantification of the damage from that cause of action was admissible in affidavits filed after that time. I consider that decision is one where there was some, albeit slight, evidence of quantification in the affidavit filed within time. It is not an authority which overrides the authorities cited above on where there is no evidence of quantification in the affidavits filed within time.
The plaintiff’s counsel also cited Endeavour Film Management Pty Ltd v Fox Studios Australia Pty Ltd[15] where an affidavit about the quantification of an offsetting claim, which was filed outside the 21 days period, was received. It is not clear from the reasons precisely what evidence of damage was contained in the affidavits filed within time. At [11] Gzell said:
If the learned Master was saying that evidence of damage could not be expanded upon in later affidavits, then with respect, he misdirected himself …
That would suggest that there was some evidence of damage in the original affidavit which was being expanded upon by the subsequent affidavits. The other cases mentioned above were not cited. If they are inconsistent, I prefer those other cases.
[15] Gzell J, 17 November 2003, [2003] NSW SC 1056.
I declined to admit the second Affidavit on the basis that it was either deposing to evidence of quantification which was not admissible for the reasons given above, or it contained other matters which were irrelevant to what I had to decide.
Section 459J points

The plaintiff submitted several s 459J points as set out below. Neither individually nor collectively do they provide a proper basis under s 459J(1) of the Act to set aside the demand.
The demand was accompanied by an affidavit of Douglas Hooper, the Body Corporate Manager of the defendant. The form of this affidavit is prescribed by Form 7 to the Corporations Rules 2003 (South Australia). Mr Hooper’s affidavit followed that form. The plaintiff did not submit there was any significant departure from the contents of the form. The plaintiff submitted that the affidavit was defective in that Mr Hooper failed to specify the basis of his belief that there was no genuine dispute about the existence, or the amount, of the debt. I do not consider that Rule 5.2, which required the affidavit to be in Form 7, envisaged that anything further about this need be contained in the affidavit other than what was prescribed in Form 7. The case cited by the plaintiff in support of the proposition of Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd[16] turned on a Rule which has no equivalent in this State. This affidavit of Mr Hooper is not before the Court on this application as evidence that there is no genuine dispute, but merely to show that the defendant had complied with the requirements of the Corporations Rules in the service of the demand. It was exhibited to the Affidavit by the plaintiff. It was not put forward by the defendant as evidence on this application that there was no genuine dispute. Hence it did not have to comply with 6R 162.
[16] (1998) 29 ACSR 11.
In paragraph 8.3 of the Affidavit Mr Hilton swears that the plaintiff is currently solvent and can meet its debts as and when they fall due. The solvency of the plaintiff is not in itself a ground to activate s 459J(1) of the Act, although it may be indirectly relevant to other grounds raised under that section.[17]
[17] Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 15 ACSR 682.
Section 41 of the Strata Titles Act 1988 requires a strata corporation on application by a unit holder to provide various information and documents. The Statement of Claim alleges that the defendant has breached its obligations to the plaintiff under s 41. However, s 41 provides a penal, and not a civil, remedy for any such breaches by a strata corporation. Even if there is an implied civil remedy for breach, the plaintiff has not pleaded this in its Statement of Claim and has not sought to quantify it. There is no evidence that any breach by the defendant of its obligations under s 41 has prevented, or impaired, the plaintiff from quantifying its offsetting claim against the defendant.
Section 41A of the Strata Titles Act 1988 provides special machinery to resolve disputes between strata corporations and their members. The special powers given in s 41A are invoked in the Statement of Claim in the District Court action. The dispute resolution machinery provided by s 41A is not mandatory and does not exclude either the strata corporation or the member seeking to enforce their respective legal rights by other means.[18] The defendant is within its legal rights to invoke the procedure for a statutory demand under s 459E of the Act to recover a debt which it claims from a unit holder. If the defendant had sued the plaintiff for the debt without invoking s 41A, and the plaintiff had counterclaimed for relief under s 41A, the plaintiff would not have been denied summary judgment on its claim if in answer to that summary judgment application the plaintiff had done no more than file the affidavit which it has filed in this action. It would not have shown any ground of defence or cross-action under 6R 232 sufficient to be a reasonable defence to the claim. The Court will not exercise its discretion under s 459J(1) where the plaintiff would not have a proper answer to a summary judgment application for the debt. The defendant’s counsel also submitted that on the evidence before the Court there was no “dispute” for the purposes of s 41A such as to bring its claim against the plaintiff within that section, but I prefer to rest my decision on the grounds stated.
[18] Sub-s 41A (16) states “This section does not limit or derogate from any civil remedy at law or in equity”.
At the next hearing the following orders will be made:
1Under s 459H of the Act:
a.the offsetting total is fixed at $1, and
b.the amount of the demand is reduced to $147,648.91.
2Otherwise the application to set aside the demand is dismissed.
3The demand as varied is to have effect from when it was served on the plaintiff.
4Costs of the action are to be the defendant’s costs.
5Adjourned to Thursday 23 June 2011 at 9.30am.