Bullant v Mr Carpet

[2000] NSWSC 165

CITATION:	Bullant v Mr Carpet [2000] NSWSC 165
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 5229/99
HEARING DATE(S):	29/02/2000 and 01/03/2000
JUDGMENT DATE:	16 March 2000
PARTIES :	Bullant Technology Pty Ltd v Mr Carpet Pty Ltd
JUDGMENT OF:	Master Macready at 1

COUNSEL :	Mr M. Ashhurst for plaintiff Mr R.S. Angyel for defendant
SOLICITORS:	Stephen Blanks & Associates for plaintiff Holman Webb for defendant
CATCHWORDS:	Corporations Law. Application to set aside statutory demand. Consideration of whether a claim to set aside a lease for breach of the Trade Practices Act leads to a genuine dispute about a claim for damages for repudiation of the lease. Demand set aside.
CASES CITED:	Eyota Pty Limited v Hanave Pty Limited (1994)12ACLC 669; Bank of New Zealand v Spedley Securities Limited (In Liquidation) & Anor (1992) 27 NSWLR 91 at 100; Barclays v Mike Gaffkin Marine Pty Ltd 21 ACSR 235 at 236; Walden Pty Ltd v Greenco Pty Ltd 13 ACLR 1039; Hoare Bros v DCT (1995) 13 ACLC 358; Musca & Ors v Astle Corporation Pty Ltd (1998) 80 ALR 251.
DECISION:	Paragraph 23

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

MASTER MACREADY

Thursday 16 March 2000

5229/99 BULLANT TECHNOLOGY PTY LTD v MR CARPET PTY LTD

1   MASTER: This is an application under s 459G of the Corporations Law to set aside a statutory demand served by the defendant on the plaintiff. The statutory demand was served on 9 December 1999 and claims amounts by way of rent and other fees under a lease from the defendant, as lessor, to the plaintiff, as lessee in respect of premises at Cassins Avenue, North Sydney. The amount claimed in the demand is $81,173.42. The lease is dated 23 May 1999 and was for a period from 5 May 1999 to 4 May 2002. The plaintiff, lessee did not enter into possession and the property has been relet. The amount claimed is for items such as rent, less the amount that will be recovered under the lease to the new tenant. The claim is thus in respect of a liquidated claim and there was no suggestion that it was not a debt in respect of which a demand could be issued. The plaintiff did not enter into possession following upon disputes between it and the defendant about representations alleged to have been made as to the suitability of the premises for the plaintiff’s business. 2   The representations upon which the plaintiff alleges that it relied, and which were said to have been made prior to entering into the lease, were as follows:-

1. The lettable area of the premises was 550.10 square metres.

2. The premises were suitable for office use.

3. The premises were able to accommodate up to fifty staff and would be accessible on weekends and after normal business hours.

3   The plaintiff says that these representations were misleading and deceptive under s 52 and s 53A of the Trade Practices Act with the consequence that they are entitled to take proceedings to have the lease set aside under s 87 of the Act or, alternatively, for damages under s 82 which would include a refund of the amounts paid ($63,900.20) and rent for which it may be liable under the lease. 4   The parties are at issue on the making of the representations and the question of reliance. In addition the defendants suggest that the claim that the lease should be set aside under s 87 or alternatively that there be damages under s 82 of the Trade Practices Act does not lead to a genuine dispute about the defendant’s entitlement to the sum claimed in the demand or an offsetting claim. 5   This leads one to consider whether there is a genuine dispute in respect of the representations and the reliance thereon. I had the benefit of having a number of submissions in respect of the principles to be applied and I think probably the most useful summation is that given by McLelland CJ in Equity in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At page 671 his Honour made the following comments respect of the expression "Genuine dispute":

"It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s.459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to (its) truth' (cf Eng Mee Yong v Letchumanan (1980) AC 331 at 341), or 'a patently feeble legal argument, or an assertion of facts unsupported by evidence' (cf South Australia v Wall (1980) 24 SASR 189 at 194).

But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments (at ACLC 1066; ACSR 366-7) Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law, and to the terms of Division 3:

'These matters, taken in combination, suggest that at least in those cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.'

In Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said:

'There is little doubt that Division 3 prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a "genuine dispute" and whether there is a "genuine claim".

It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.

The essential task is relatively simply - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).'

I respectfully agree with those statements."

6 I turn to the question of representations. I will first deal with the representation that the lettable area of the premises was 550.10 square metres. This arises because of a query by the plaintiffs as to the area. In a letter of 16 March 1999 the defendant’s solicitors wrote confirming that “The area of the premises is in fact 550.10 square metres and it is utilising that area that the figure referred to in clause 3(3) has been reached. A copy of the BOMA survey is attached hereto for your assistance”. That document referred to the areas which had, according to the document, “been deduced in accordance with, and under interpretation of, the BOMA method for the measurement of buildings revised edition June 1998 part 5 gross lettable area”. There is no doubt that the representation was made and the question is whether it is untrue. 7 The evidence as to what was the area was recounted by Mr Aitchison of the plaintiff who was advised by Mr Herring, a project manager. “The total area that you’ve actually leased is only about 429 square metres”. This was subsequently amended, after checking his calculations, to say that the area, the subject of the lease, was 455 square metres. The difference between that and 550 is, of course, substantial being approximately 20 percent. 8 There was cross examination of Mr Simkin, an officer of the defendant, concerning the plan to which I have referred. He conceded in cross examination that the plan did not show on level 1 a void in that floor level nor did it show the area occupied by the stairs. He could not say whether or not the figure that had been calculated and shown in the plan included both of those areas but a reasonable inference is that it does include them. Leaving aside whether the tenant had to use the stairs, the void which it was conceded exists over level 1 above the ground floor, certainly would, I would have thought, been relevant on any view as to the lettable area. The parties in this litigation before me have not yet descended into the detail that might ultimately be necessary which might flow from the BOMA method for measurement to which I have referred. It seems to me, however, that the evidence as to the measured area from the architect and the evidence about the admitted void on level 1, would at least make it clear that there is a genuine dispute about the truth of the representation made by the solicitors in the letter to which I have referred. 9 I turn to the representation that the premises were suitable for office use. The evidence of this representation is the advertisement hoarding outside the premises when they were offered for lease. The sign clearly indicated that what was for lease was “office space”. The land is zoned under the North Sydney Local Environmental Plan 1989 as 4(b) Light Industrial. One of the objectives of that zoning was to prohibit commercial office space but it clearly permitted light industries and a variety of other industrial matters such as spray painting and panel beating with the appropriate consent. Light industry is defined as an industry which is not offensive or hazardous and which describes the process as one which does not interfere with the amenity of the neighbourhood by reason noise, vibrations, smell, fumes etc. The plaintiff does not seem to have given any evidence before me of precisely what its use comprised but it did sign a lease in which the permitted use was “computer software research and development” and Mr Aitchison seems to have advised Mr Simkin of the defendant that it was “software engineering company - design and construction computer software products”. 10 Paragraph 14 of Mr Aitchison’s affidavit of 23 December 1999 was admitted provisionally. I have already in a judgment dealt with the question of whether hearsay evidence may be given in this application and determined that the present application is an interlocutory application. Given the terms of Part 36 rule 4 there would be no reason why paragraph 14 could not be admitted. This is apart from discretionary considerations such as the fact that it is third hand hearsay. I propose to admit that paragraph which recited a conversation between Mr Herring and Mr Aitchison a few days after the 24 May 1999 to the following effect.

“The Council will not provide you with an approval to use the Premises as office space, it will not allow you to use the Premises for 24 hours a day, 7 days per week and it will not allow you to have more than 18 permanent staff on the premises.”

11   On this particular representation with which I am concerned the only relevant statement is that the Council would not allow the plaintiff to use the premises as office space. That does not assist the situation as on the evidence before me it seems that the only use for which the plaintiff proposed to use the premises was more in the nature of light industrial rather than office space. In the circumstances I am not satisfied that there is a genuine dispute as to the falsity of the representation. Even assuming the representation it seems clear that the type of use proposed for the plaintiff may be able to be accommodated within the zoning. 12   I turn to the third representation that the premises were able to accommodate up to 50 staff and be accessible on weekends and after normal business hours. That representation is contained in paragraph 5 of the affidavit of Mr Aitchison of 23 December 1999. It is in these terms:-

“During the course of these negotiations I had a conversation with Mr Ian Fortesque the real estate agent representing the defendant in relation to the leasing of the Premises, in which words to the following effect were said:-
Deponent: “We will be using the premises on week-ends and after normal business hours and will need to have access for those times.”
Fortesque: “That should be fine.”
Deponent: “We will initially have around 18 staff on the premises but this will eventually grow to 50 staff as the company expands.”
Fortesque: “That should not be a problem.”

13   It was submitted that these were words of comfort. In my view they would be arguably a representation given the purpose for leasing the premises. The only evidence as to the falsity of the representation is that contained in paragraph 14 which I have already recounted above. As far as use on weekends and after normal business hours is concerned, the minimal evidence of breach does not fit the representation. 14   A more important one is about staff. With regard to the evidence of the falsity of the representation all one has is a third hand hearsay account of a statement by a Council officer that fifty would not be permitted. This clearly on the evidence is not one made as a result of an application lodged seeking approval for fifty but from some discussion between Mr Herring and a Council officer. I have referred to the statutory provisions and it is hard to see support for such a view. Although it is only at the level of whether there is a dispute on the matter I am really not satisfied that there is a genuine dispute on this aspect. 15   I turn to the question of whether there might be any reliance in respect of the misrepresentation about the area of the premises. There is clearly evidence of reliance by the plaintiff on the area representation. In addition this seems to be supported by paragraph 3 of Mr Aitchison’s affidavit of 28 February 2000 which indicated his particular reasons for wanting at least 500 square metres. This was to accommodate the number of employees proposed and the area each employee would occupy. It was suggested by the defendant that there was no acceptable evidence of reliance. In particular they referred to the following matter:-

1. That there had been an inspection of the premises before signing the lease.

2. They were given a survey of the premises before they signed the lease.

3. They were represented by solicitors.

4. The terms of clause 15.4 of the lease which provided that the Lessor did not warrant the suitability of the premises.

16   None of these matters lead me to the view that I should not conclude that there is at least a genuine dispute about reliance. It seems to me that the question is arguable. 17   In these circumstances it is necessary to move to whether or not the nature of the claim is one which can give rise to a genuine dispute. It was submitted that because breaches of s 52 are not a defence to a claim for a constructive trust, see Bank of New Zealand v Spedley Securities Limited ( In Liquidation ) & Anor (1992) 27 NSWLR 91 at 100 and 106 and 108, that such breaches do not give rise to a genuine dispute.

18   There are a number of cases holding that the fact that a judgment was under appeal leads to no genuine dispute in respect of that judgment in the absence of any stay. See Barclays v Mike Gaffkin Marine Pty Ltd 21 ACSR 235 at 236 and Walden Pty Ltd v Greenco Pty Ltd 13 ACLR 1039. This is because the judgment operates as res judicata determining the matter of liability for the amount of the judgment. This is not however the position in the present case.

19   A more instructive case, as it focuses on the nature of the relevant debt, is Hoare Bros v Deputy Commissioner of Taxation (1995) 13 ACLC 358. His Honour Mr Justice Olney had to determine whether a genuine dispute existed in respect of a taxation debt where the taxpayer had objected against the assessment. Under the Income Tax Assessment Act a taxpayer became liable for tax when the Commissioner had assessed the amount of income tax payable, had served an assessment on the taxpayer and when the prescribed period had expired. His Honour concluded that the scheme of the Income Tax Assessment Act was such as to not render a taxpayer liable to tax unless and until the three events occurred. Once the events have occurred the tax as assessed becomes a debt due to the Commonwealth by the taxpayer. His Honour was of the view that any dispute as to whether or not anyone or more of those three events had occurred would be a ground upon which the power to set aside the statutory demand could be exercised. Such a dispute would clearly go to the question of the existence of the debt. His Honour concluded that the structure of the taxation legislation was such that the debt created after the service of an assessment remained recoverable as a debt unless and until it is replaced, following objection review or appeal, by some other liability. He concluded that a genuine dispute as to the process of assessment, i.e. the objection procedure, is not a dispute as to the existence or amount of the debt. 20   It is helpful in this case to refer to the nature of the debt which is claimed. The claim is for the total amount of the rent and car parking fees in respect of the lease which was entered into less the amounts paid by the plaintiff ($63,900.20) and less the total rent payable under the new lease (with appropriate adjustments) of the premises. The claim is said to be following repudiation of the lease by the plaintiff. Therefore it would seem to be a claim for liquidated damages for breach of contract. The claim is not a claim for rent as it does not appear to be calculated by reference to the rent payable under the executed lease up to the date of the demand. There has, of course, been no judgment of a court in respect of the amount claimed in the demand. 21   Any successful application under s 87 of the Trade Practices Act could lead to the lease being set aside ab initio. See for an example Musca & Ors v Astle Corporation Pty Ltd (1988) 80 ALR 251. If the lease is set aside ab initio there can be no question of its repudiation and thus damages for breach. For this reason it seems that there is a genuine dispute about the very existence of the debt claimed in the demand. 22 The claim was also put on an alternative basis as I have recounted earlier, namely, that there would be an offsetting claim because of the amounts that had already been paid and a liability for rent incurred. So far as the amounts paid are concerned these have in fact been taken into account in the statutory demand. So far as the others are concerned they are not matters in respect of which there has been payment and accordingly there can be no offsetting claim. 23 I order -

1. That the statutory demand served by the defendant on the plaintiff on 9 December 1999 be set aside.

2. That the defendant pay the plaintiff’s costs.

Last Modified: 09/25/2000