9TH Sky Pty Ltd v Carlton Plaza Nominees

Supreme Court of South Australia
(Civil)
9TH SKY PTY LTD v CARLTON PLAZA NOMINEES
[2021] SASC 92
Judgment of Judge Dart a Master of the Supreme Court

CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - STATUTORY DEMAND - APPLICATION TO SET ASIDE DEMAND
Applicant tenant of the respondent - lease terminated - applicant failed to comply with obligations arising upon termination of the lease - lessor remedies the breach at its expense - statutory demand for the cost of the remedial work - is that a debt? - is it damages? - is there a debt for the purposes of the Corporations Act 2001?
Held:
1. Statutory demand set aside.
2. Respondent to pay the applicant's costs of the action.
3. Certified fit for counsel.
Corporations Act 2001 (Cth) s 459E(1), s 459H, referred to.
Ragi Pty Ltd v Kiwi Munchies Pty Ltd [2005] NSWSC 798, applied.
Bentham Management Pty Ltd v Union Finance Pty Ltd [2007] SASC 42; Denet Pty Ltd v Global Marketing Group International Pty Ltd (2002) 20 ACLC 301; Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321; Hardel Pty Ltd v Burrell & Family Pty Ltd [2009] SASC 77; Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach (No 2) [2003] NSWSC 896; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 24 ACSR 353, considered.

9TH SKY PTY LTD v CARLTON PLAZA NOMINEES
[2021] SASC 92

This is an application to set aside a statutory demand (“demand”). The application should be allowed.
Background
The applicant was a tenant of two properties in Hindley Street. The respondent is the lessor of each. The terms of the tenancy were recorded in two written leases made on 27 March 2014. Each lease contained a redevelopment clause (clause 14.3). The landlord gave a notice of termination pursuant to the redevelopment clause in respect of each lease.
In each lease (clause 13) there were set out the lessee obligations upon the termination of the lease. There were two obligations relevant for present purposes. The first was to return all the keys and the second was to remove all of the tenant’s fixtures in the respective premises. In the result, the lessee failed to comply with either obligation.
The respondent engaged various trades to change the locks and remedy the state of the premises. It then aggregated the various invoices for carrying out the work said to be caused by the alleged breach of the leases by the applicant. The invoices total the amount of $18,942.10. The demand is in that amount.
Relevant Corporations Act 2001 provisions
An application to set aside a statutory demand is made pursuant to s 459H of the Corporations Act 2001 (“the Act”). The section is in the following terms:
459HDetermination of application where there is a dispute or offsetting claim
(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.
Courts around Australia have been dealing with these provisions since the early 1990s. There are many judicial pronouncements setting out the test to be applied in determining whether or not an applicant has established that a genuine dispute exists. The applicant asserts that there is a genuine dispute about the existence of the debt claimed in the demand. While the formulations differ slightly, a fair summary would suggest that the test is not particularly onerous, so long as there appears to be a proper evidentiary basis for the assertion that there is a genuine dispute or offsetting claim.
A widely-adopted definition was provided by the Full Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd which said:[1]
In our view a “genuine” dispute requires that:
• the dispute be bona fide and truly exist in fact;
[1] (1997) 24 ACSR 353 at 365.
In Eyota Pty Ltd v Hanave Pty Ltd[2]it was stated that the expression “genuine dispute” connotes a plausible contention requiring further investigation.[3]
[2] (1994) 12 ACSR 785.
[3] (1994) 12 ACSR 785 at 787.
The Court’s function on an application to set aside a statutory demand is limited. In Bentham Management Pty Ltd v Union Finance Pty Ltd Debelle J stated:[4]
In short, the Court’s task is not to seek to resolve the competing claims of the applicant or respondent but to resolve whether a genuine dispute exists or whether there is a genuine counterclaim, set-off or cross-demand. It is not to try the claim but merely to establish its genuineness.
[4] [2007] SASC 42 at [15].
The purpose of the statutory demand regime is to act as a filter. That is, to separate out those disputes which are genuine and those disputes which are not. If there is a genuine dispute, the demand is set aside and the matter is left to be litigated in the usual manner.
In Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach (No 2) Barrett J said as follows:[5]
These tests, applied in the context of a summary procedure where it is not expected that the court will embark on any extended inquiry, mean that the task faced by a company challenging a statutory demand on the "genuine dispute" ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s.459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.
[5] [2003] NSWSC 896 at [18].
Consideration
The first issue pressed by the respondent is that the application is not supported by an adequate affidavit. The affidavit filed in support of the application was sworn by a solicitor. It is very spare. It is not ideal to have solicitors swearing affidavits on applications such as this. It is good practice to have the director of the company served with the demand swear the supporting affidavit. Nonetheless, an affidavit does not have to be perfect, it only has to be adequate. An application to set aside a statutory demand is interlocutory.[6] The Uniform Civil Rules permit the use of information and belief affidavits on interlocutory applications.[7]
[6] Hardel Pty Ltd v Burrell & Family Pty Ltd [2009] SASC 77.
[7] UCR rule 101.4
The initial supporting affidavit raises only one live issue for consideration. That is whether the amount claimed in the demand is a debt. It is fundamental to the statutory demand provisions of the Act that there must be a debt.[8] The affidavit is adequate. The assertion by the solicitor in the affidavit that the claimed amount is not a debt is probably not inadmissible hearsay in any event. It is simply an assertion of fact.
[8] Section 459E(1) of the Corporations Act.
Another issue raised by the respondent is that a copy of the demand was not exhibited to the first affidavit. It was exhibited to a subsequent affidavit. The critical issue is that at the time of the argument the statutory demand is in evidence.[9]
[9] Denet Pty Ltd v Global Marketing Group International Pty Ltd (2002) 20 ACLC 301.
The sole question is whether the costs incurred by the landlord by reason of the failure of the applicant to comply with the lease is a debt. Clearly it is a breach of lease, thus a breach of contract. The landlord is entitled to damages for that breach. A right to claim damages, however, does not ordinarily create a debt for the purpose of the Act.
The matter was considered in Ragi Pty Ltd v Kiwi Munchies Pty Ltd[10] by Associate Justice Macready. His Honour said:[11]
I do not see how the debt arises. Sections 28 and 29 work by making their provisions a term of the lease. All that would follow is a breach of the lease. Presumably if the lessor refused to give a statement and refused to give an adjustment there may be breaches of the terms of the lease which are comprised in ss 28 and 29. All this would lead to is a claim for damages for breach of contract. Such a claim cannot be relied upon as the basis for the statutory demand. (See Rothwells v Nommack (No 100) 6 ACLC 1199 at 1200 and First Line Distribution v Paul Whiley 13 ACLC 1216 at 1218 and also the unreported decision of Griffiths Producers Co-Operative Limited v Calabria, McLelland CJ in Eq 28 November 1996. See also CGI Information Systems and Management Consultants Pty Limited v APRA Consulting Pty Limited [2003] NSWSC 728; (2003) 47 ACSR 100.
[10] [2005] NSWSC 798.
[11] Ragi v Kiwi [2005] NSWSC 798.
The respondent relies on the judgment of White J in Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd.[12] His Honour was dealing with an application to set aside a statutory demand. The debt arose from a dispute about a contract for the sale of real property. The vendor had re-sold the property after the purchaser failed to settle on the contract. The second sale was for a lesser price and the statutory demand claimed the difference. His Honour said:[13]
[12] (2007) 61 ACSR 321.
[13] Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd (2007) 61 ACSR 321 at [55] and [59].
In my view, where, under a contract, a person promises to pay a specific or readily calculable sum which does not depend upon an assessment, albeit that the sum is payable as liquidated damages for breach of contract, the person’s contractual liability is properly characterised as giving rise to a debt in that sum.
…
In the present case, no claim is made for costs and expenses. It suffices to say that the calculation of the debt involves no element of opinion or assessment. It is simply the difference between the contract price between Permanent and the plaintiff less the deposit, and less the price on resale.
In the result, White J held that the difference in the sale price was a debt. That was because there was no element of opinion or assessment in its calculation. That is not the case in this matter. The question of whether the works carried out by the respondent were necessary or appropriate, and the prices paid for having the trades in to carry out the work, are matters that would ordinarily be the subject of an assessment by a magistrate on a claim for damages.
The claim for damages by the respondent is not a debt for the purposes of the Act. It follows that there is a genuine dispute in relation to the debt claimed in the demand. The demand is set aside. The respondent should pay the costs of the application, certified fit for counsel.

[2021] SASC 92

28 July 2021