Black Hole Enterprises Pty Ltd v Classic Heights Pty Ltd
[1995] FCA 467
•26 Jun 1995
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIAN DISTRICT REGISTRY
GENERAL DIVISION No VG 3415 of 1994
BETWEEN:
BLACK HOLE ENTERPRISES PTY LTD
Applicant
-and-
CLASSIC HEIGHTS PTY LTD
Respondent
Coram: Olney J
Place: Melbourne
Date: 26 June 1995
MINUTE OF ORDER
THE COURT ORDERS THAT the application be dismissed with costs.
NOTE:Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIAN DISTRICT REGISTRY
GENERAL DIVISION No VG 3415 of 1994
BETWEEN:
BLACK HOLE ENTERPRISES PTY LTD
Applicant
-and-
CLASSIC HEIGHTS PTY LTD
Respondent
Coram: Olney J
Place: Melbourne
Date: 26 June 1995
REASONS FOR JUDGMENT
On 5 September 1994 the respondent's then solicitors caused to be posted to the registered office of the applicant a Creditor's Statutory Demand for Payment of Debt (the demand) whereby the respondent required payment within 21 days of the sum of $26,894.70 said to be due and payable by the applicant pursuant to an order made by Master Bruce in the Supreme Court of Victoria on 31 August 1994 in proceeding 5692 of 1994.
The applicant admits service of the demand and admits that the sum claimed is due and payable. It has however made application pursuant to s 459G of the Corporations Law for an order that the demand be set aside on the grounds first that it has an off-setting claim against the respondent and second, that there are other reasons why the statutory demand should be set aside.
The scheme of Divisions 2 and 3 of part 5.4 of the Corporations Law is now well known. It is unnecessary to recite the relevant provisions in detail. Upon an application to set aside a statutory demand the Court must determine whether it is satisfied that there is a genuine dispute between the company (the applicant) and the respondent about the existence or amount of a debt to which the demand relates and/or that the company has an offsetting claim (s 459H (1)). Having done that, the Court must then calculate the "substantiated amount" of the demand by subtracting from the "admitted amount" the amount of any "offsetting claim" (s 459H(2)) whereupon it may, depending on the circumstances, either set aside the statutory demand (s 459H(3)), vary the amount of the demand (s 459H(4)) or dismiss the application (s 459L).
The Court may also set aside a statutory demand if it is satisfied that because of a defect in the demand substantial injustice will be caused unless the demand is set aside (s 459J(1)(a)) or there is some other reason why the demand should be set aside (s 459J(1)(b)). The provisions of s 459H have effect subject to s 459J (s 459H(6)).
In this case it is not said that there is any defect in the demand nor is there any dispute between the applicant and the respondent about the existence or amount of the debt to which the demand relates. Accordingly, for the purpose of the statutory formula the admitted amount (as that term is defined) is $26,894.70.
The term "offsetting claim" is defined in s 459H(5) to mean:
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).
The concept of an offsetting claim does not necessarily entail the existence of a debt due and payable. An unliquidated claim would comfortably fit within the definition of the term, but it is a necessary requirement that for the purpose of the formula expressed in s 459H(2) that the Court be able to express in monetary terms (albeit merely an estimate) the value of the claim. Indeed, an estimate based upon the evidence that the value of the offsetting claim would be likely to exceed the admitted amount of the claim would probably be sufficient. But there must be some credible basis in the evidence to justify any such valuation of the offsetting claim.
The applicant's principle assertion is that it has an "offsetting claim" of an amount which exceeds the admitted amount and thus the substantiated amount is a negative sum, and therefore, it being less than the statutory minimum the Court must set the demand aside (s 459H(3)).
The facts of this case, as they appear from the affidavit evidence, are as follows:
In April 1992 when it was one of two joint registered proprietors of certain land in Melbourne situate at and known as 164-170 Flinders Street (the land) the respondent and the other joint proprietor leased the second floor of the building erected on the land to the applicant for a term of 7 years with two successive options of renewal for further terms of 7 years each (the second floor lease). In July 1992 the same proprietors entered into an agreement to lease the third floor of the building to the applicant for a similar term (the third floor lease). The second and third floors of the building are hereafter collectively referred to as the premises. The premises were used by the applicant to conduct thereon the business of a night club. The respondent is now the sole registered proprietor of the land and is the successor in title to the original lessors.
In late 1992 disputes arose between the parties concerning the leases and the premises. The respondent claimed that the applicant was in arrear with the rent, a claim which the applicant denied. In January 1993 the applicant drew the respondent's attention to what was said to be serious short comings in the maintenance of the premises. The dispute as to the rent is said (by the applicant) to have been resolved by an agreement reached between the parties in April 1993 to adjust the amount payable by the applicant to a weekly sum of $1200 to cover both rent and outgoings. The applicant says further that on 17 May 1993 the respondent's then solicitor wrote to the applicant confirming the agreement under which the applicant was paying $1200 per week. The full text of that letter is set out below:
17th MAY, 1993
MESSRS. TIM STAMMERS &
ANTHONY PATTON
BLACK HOLE ENTERPRISES PTY LTD
2ND FLOOR
164 FLINDERS STREET
MELBOURNE VIC 3000
Dear Sirs,WITHOUT PREJUDICE
RE:CLASSIC HEIGHTS PTY LTD
I refer to our numerous discussions regarding the Temple Club and confirm that your lease of the 2nd floor and your monthly tenancy of the 3rd floor have been terminated.
You have been granted occupation of both floors on the basis that you pay the amount of $1,200 by cash or bank cheque by the close of business every Wednesday as a weekly rent.
To date payments have been made on Fridays. This is not acceptable.
Secondly, you have been granted a week to week tenancy on the basis that you come up with a proposal for repayment of all arrears. No such proposal has yet been made.
Accordingly I must ask that you provide me with a repayment proposal immediately.
I remind you that the landlords right to rent under the lease until the expiration of the term of the lease is not affected by the termination of the lease and therefore your indebtedness continues to increase.
Yours faithfully,
(Sgd) GEORGE KONSTAS
Subsequent correspondence indicates that the applicant continued to dispute that the respondent had been entitled to terminate the leases whereas the respondent's solicitor continued to assert that the leases had been properly terminated and that the applicant's continued occupation of the premises was as a weekly tenant.
The applicant paid rent at the rate of $1,200 per week for several weeks from the week commencing on 28 April 1993 but the respondent's agent refused to accept further payments tendered on 15 and 21 July 1993.
On 11 August 1993 the respondent served 2 notices pursuant to s 146 of the Property Law Act 1958. One notice referred to the second floor premises; the other referred to the third floor premises. Each notice required the applicant to remedy various defaults particularised in the notices within 14 days and gave notice that in default it was the respondent's intention to re-enter the premises. On 30 August 1993 the respondent re-entered the premises and has since excluded the applicant therefrom.
The applicant lodged caveats at the Land Titles Office on 2 December 1993 claiming a leasehold estate in each of the second floor and the third floor. On 14 December 1993 the respondent made application to the Registrar of Titles pursuant to s 89A(1) of the Transfer of Land Act for the issuing of notices pursuant to s 89A(3) in respect of each caveat advising the applicant that the relevant caveat would lapse unless within the specified time the Registrar was notified that proceedings had been commenced in a court of competent jurisdiction to substantiate the claims made in the caveat. The Registrar gave notice pursuant to s 89A(3) on 19 April 1993 requiring that advice as to the commencement of proceedings be given by 27 May 1994.
On 21 April 1994 the respondent commenced proceedings in the Supreme Court of Victoria (the respondent's Supreme Court action) seeking removal of the caveats. On 29 April 1994 the applicant commenced proceedings in the Supreme Court of Victoria (the applicant's Supreme Court action) seeking declarations that it was entitled to a leasehold estate in both the second floor and the third floor and that its claims as caveator in relation to the two caveats had been substantiated.
An order was made in the respondent's Supreme Court action that certain preliminary questions be tried before the trial of the proceeding. The questions related to whether or not the applicant had a caveatable interest in the premises as claimed in the caveats. The preliminary questions were heard by Batt J on 8, 9 and 10 June 1994 and his Honour's decision was delivered on 27 June 1994. The Court found that the applicant did not have a caveatable interest in the premises and directed the Registrar of Titles to forthwith do all things necessary to remove the caveats. The Court also ordered that the applicant pay the respondent's costs of the proceeding.
The costs in the respondent's Supreme Court action were taxed on 31 August 1994 and allowed in the sum of $26,894.70. The demand in this proceeding relates to the amount of such costs.
There is no evidence before the Court as to what stage the applicant's Supreme Court action has reached but it is my understanding that the matter has not progressed very far due to a number of factors including the hearing of the respondent's Supreme Court action, a demand by the respondent that the applicant provide security for costs and the desire to have matters raised in this application determined.
The foregoing chronology omits reference to a number of facts. First, it is common cause that the demand to which this proceeding relates is the third statutory demand made by the respondent against the applicant. The first demand was made on 12 August 1993, on the day after the respondent served notices under the Property Law Act and the second was made on 31 March 1994, in the period between the respondent's request to the Registrar of Titles pursuant to s 89A(1) of the Transfer Land Act and the Registrar giving notice to the applicant pursuant to s 89A(3). In each of the first and second statutory demands the respondent claimed a debt of $26,582.43 for rent and outgoings due and payable as at 30 August 1993 in relation to lease agreements between the applicant and the respondent. The respondent did not pursue the first statutory demand made on 12 August 1993. It does not appear that any application was made to set it aside but as no winding up application was made within the relevant period after service of the demand, it was of no practical effect. The applicant did make an application to set aside the second statutory demand. The application was filed on 21 April 1994, on the same day as the respondent's Supreme Court action was commenced. On 24 May 1994 an order was made by consent setting aside the statutory demand.
A second matter which is not referred to above in any detail is that throughout its dealings with the respondent in the period since the respondent first alleged that the rent for the premises was in arrear, the applicant has consistently denied that to be so and has at all times since being evicted from the premises on 30 August 1993 asserted that it has a leasehold interest in the premises.
There is one other matter which calls for comment. There is evidence which suggests that as early as July 1993 the respondent was contemplating the sale of the premises and on 30 September 1993 an application was made by another company for a planning permit to allow the erection of a further floor to the existing building and to use it for 29 residential units and shops. The evidence as to what occurred since the applicant's eviction is not very precise but it does appear that the property has been sold and converted to an alternative use.
The applicant relies upon three affidavits of James Gregory Eden, (Eden) a director of the applicant, affirmed respectively on 21 September 1994, 4 November 1994 and 25 January 1995. Put briefly, and I hope fairly, it is the applicant's case that -
the respondent's conduct in evicting the applicant from the premises on 30 August 1993 was not sanctioned either by the terms of the relevant leases or otherwise by law;
the applicant's leasehold interest in the premises has not been terminated;
by reason of its eviction from the premises the applicant has been prevented since 30 August 1993 from carrying on its nightclub business upon the premises and has thereby suffered loss and damage;
by reason of the respondent having sold goods and equipment belonging to the applicant it has suffered further loss and damage;
the estimated value of the applicant's business at 30 August 1993 was $300,000 and the estimated value of goods belonging to the applicant sold by the respondent was $60,000;
it has an offsetting claim against the respondent of the order of $360,000, being a sum considerably in excess of the amount of the debt claimed in the demand.
In support of its assertion that the value of its business as at 30 August 1993 was not less than $300,000 the applicant relies upon the following statements in relation to the business contained in paragraph 24 of Eden's affidavit of 21 September 1994:
Prior to it being terminated by the actions of Classic Heights, it was a going concern, it had a good name and reputation, and it was generating a good cash flow. There was every reason to believe that the business would continue to prosper and produce profit. In the course of the last night that it operated before Black Hole was evicted, there were approximately 1,000 patrons who entered the premises at various times. Black Hole had employed a manager in view of its expanding clientele, and it had every reason to believe that its future prospects were good, particularly as it had, in effect, a 21 year lease.
Eden's evidence is notable for what it does not contain. In particular it is not said that the applicant's business was in fact profitable and no information is proffered from which it may be possible to form some idea of the value of the business at the relevant time. There is no evidentiary basis upon which the Court can form a conclusion as to what, if any, value could reasonably be attributed to the business. Indeed, it may well be that it had no commercial value at all. All of the relevant information is within the knowledge of the applicant and its failure to expose that information to scrutiny invites the inference that such information would not have supported the applicant's case. Whilst there is no doubt that the applicant has consistently, over a long period, claimed to have been unlawfully evicted from the premises, and in that respect may well be said to have a genuine claim against the respondent for any damage it may have suffered as a result, the evidence adduced is not only entirely inadequate to enable any monetary value to be placed on that claim but further, the absence of any credible information is strongly suggestive of the probability that the business had no commercial value at all. In these circumstances the value of the applicant's offsetting claim in relation to its claimed leasehold interest in the premises and any claim arising out of its alleged wrongful eviction from the premises, cannot be quantified. On the available evidence it cannot be said with any degree of confidence that the offsetting claim has any value.
I turn now to deal with the applicant's claim in respect of its goods and equipment which it says the respondent sold. Once again, the evidence proffered is extremely scant. Indeed the only assertion made in this context is the following statement in paragraph 24 of Eden's affidavit of 21 September 1994:
In so far as Black Hole is able to quantify its loss and damage, it points to the loss of capital of $77,500 invested in Black Hole, the loss of estimated profit and the value of its goods and equipment sold by Classic Heights, which it estimates at $60,000.
At the hearing of the application the applicant specifically abandoned the claim in respect of loss of capital and loss of profit.
There are two items of evidence which have some bearing upon this issue. As it happens, neither was specifically relied upon the by the applicant as the documents in which they appear were produced for other purposes.
In a facsimile transmission sent to the respondent's solicitor on 23 September 1993, Eden wrote, inter alia:
We have heard that the building has been sold. Could you please notify the new owners that all the goods and chattels on the Second and Third floors, 164-170 Flinders Street Melbourne are and shall remain the property of Black Hole Enterprises Pty Ltd.
Subsequently, on 28 October 1993 another director of the applicant one Gavin Campbell sent the following fax to the respondent's solicitors:
Dear Cameron,
RE: CLASSIC HEIGHTS Vs BLACKHOLE ENTERPRISES
With reference to your fax of 27th October, please note that notice has been too short to arrange removal of our property.
We intend to remove our property on Monday, 1st November. Would you please ensure that the goods lift is operational on that day.
We are not prepared to pay your representative, for supervision, as the necessity for our property to be removed comes from your improper re-entry into the premises in breach of our lease.
Thanking you in anticipation
Yours faithfully,
Gavin Campbell
DIRECTOR
On 26 November 1993 the applicant's then solicitor wrote at length to the respondent's solicitor, and in the course of his letter said:
As to more recent events, my client took the view that as your client had destroyed its business, it should minimise its damage by removing its property from the premises. Despite your assertions, representatives of my client did attend at the premises on 1st November, the lift was clogged with building refuse and my client's representative attended again at 2 p.m. and 4 p.m. when the lift was being used by your client's (or their purchaser's) builders.
...
Another matter has now arisen. Furniture, kitchen appliances and other equipment has been removed from my client's premises and taken to Taylor Woods Auctions in Port Melbourne, presumably to be sold. I wish to register my client's strongest objections to this conduct. The furniture, in particular, was designed and built expressly for my client's business. Your client has no right to take this property or deal with it in any way, either under the Leases or otherwise.
The auctioneer has informed a representative of my client that it should "see Coltmans" about this. You should therefore take immediately steps to preserve this property, failing which my client will certainly be taking action.
There is no evidence to support the assertion that any of the applicant's property has been sold by the respondent. The last word said about the applicant's property is the final sentence quoted above, which was written in November 1993. If the property has been sold contrary to the applicant's request that it be preserved one would have thought that the applicant could adduce some evidence to that effect. There is no evidence that the applicant has ever made any claim in respect of this property. There is no evidence of any demand by the applicant for the proceeds of sale to be paid to it, nor is there any evidence of any claim having been made for loss caused by the sale other than the reference in Eden's affidavit. The circumstances of the case as they appear from the evidence do not satisfy me that the applicant has a genuine claim against the respondent in respect of the alleged sale of its property.
The applicant has failed to establish that it has an offsetting claim of any quantifiable value and in particular it has not demonstrated that by application of the formula in s 459H(2) the substantiated amount is less than the statutory minimum. Accordingly, there is no basis upon which to set the demand aside pursuant to s 459H(3). Nor is there any basis upon which the Court can vary the amount of the demand pursuant to s 459H(4).
It remains for me to deal with the applicant's contention that the demand should be set aside for some other reason pursuant to s 459J(1)(b).
In paragraph 4 of his affidavit of 21 September 1994, in the context of his commentary in relation to the three statutory demands served on the applicant by the respondent, Eden says:
It is Black Hole's contention that this series of Statutory Demands is part of an attempt by Classic Heights to dispossess Black Hole from its premises, to wind the company up and by that means to prevent it from pursuing the legitimate and reasonable claim that it has against Classic Heights arising from its eviction.
And at paragraph 28 of the same affidavit he says:
It is therefore respectfully submitted that the service of the Statutory Demand has been made to prevent Black Hole from proceeding with its claim that the purported determination of its two leases took place not because Black Hole was in breach of the leases, but because Classic Heights wanted to sell the building and have it converted into flats. The Statutory Demand should therefore be set aside to enable Black Hole to pursue its claim without being at risk of being wound up.
As previously indicated, there is evidence which suggests that from about July 1993 onwards the respondent intended to sell the building presumably to a purchaser who intended to redevelop it for residential use, but that fact does no more than to suggest that the respondent may have taken the opportunity which it considered had presented itself to terminate the applicant's interest in the premises. It must be recalled that the very letter which the applicant relies upon as supporting the agreement that the combined rental be adjusted to $1,200 per week contains the assertion by the respondent's solicitor that the applicant had become a weekly tenant. Whether or not the applicant had become a weekly tenant as from 28 April 1993 is beside the point. It is relevant that the applicant took no steps, when confronted with the Property Law Act notices in August 1993 to have the respondent restrained from acting upon those notices nor has the applicant ever taken any steps to quantify its claim for loss and damage arising out of its alleged wrongful eviction from the premises. The applicant's Supreme Court action is not apt to produce such a result. The respondent has on the other hand acted consistently with its claim, first in attempting to recover the amount claimed as arrears of rent and outgoings and second to recover the costs awarded in its favour by the Supreme Court. In my opinion there is nothing in the respondent's conduct which suggests that it has resorted to the provisions of s 459G of the Corporations Law for an improper purpose or that its conduct otherwise provides a reason to set the demand aside.
The application will be dismissed with costs.
I certify that this and the preceding 15 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney
Associate:
Dated:
Heard: 8 June 1995
Place: Melbourne
Judgment: 26 June 1995
Appearances:
The Hon N.A. Brown QC (instructed by Robert P. McCracken) appeared for the applicant.
Mr S.P. Gardiner (instructed by Rawling & Company) appeared for the respondent.
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