Guardian Group Australia Pty Ltd v Alice Lu

[2005] NSWSC 1299

CITATION:	Guardian Group Australia Pty Ltd v Alice Lu & anor [2005] NSWSC 1299 This decision has been amended. Please see the end of the judgment for a list of the amendments.
JUDGMENT DATE :	17 November 2005
JUDGMENT OF:	Brereton J

CATCHWORDS:	CORPORATIONS - Winding Up - Application - Abuse of process - where concurrent proceedings at law foreshadowed - where no genuine dispute on reasonable grounds as to debt
LEGISLATION CITED:	Corporations Act 2001 (Cth), s 459S
CASES CITED:	DAG International Pty Ltd v DAG International Group [2005] NSWSC 1036 Mala Pty Ltd v Johnston (1995) 13 ACLC 100 Milano v J D Holdings [2001] NSWSC 899 Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 911 Re Bond Corporation Holdings Ltd (1990) 1 ACSR 350 Switz v Glowbind Pty Ltd (2000) 33 ACSR 723 Wilson Market Research Pty Ltd and the Corporations Law (1996) 39 NSWLR 311
PARTIES:	Guardian Group Australia Pty Limited (plaintiff/respondent) Alice Lu (first defendant/applicant) David Lu (second defendant/applicant) David Lu (first plaintiff/applicant) Alice Lue (second plaintiff/applicant) Guardian Group Australia Pty Ltd (defendant/respondent)
FILE NUMBER(S):	SC 4851/03; 5835/05
COUNSEL:	A Radojev (respondent/plaintiff) JJ Young (applicant/defendants)
SOLICITORS:	Eric Fung & co (plaintiff/respondent) Duncan Cotterill Lawyers (defendants/applicant)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Brereton J

Thursday 17 November 2005

4851/03 Guardian Group Australia Pty Ltd v Alice Lu & 1 Or

5835/05 David Lu & Anor v Guardian Group Australia Pty Limited

JUDGMENT (ex tempore – revised 21 December 2005)

1 HIS HONOUR: The plaintiffs in proceedings 5835/05 (“the winding-up proceedings”), David and Alice Lu, are the proprietors and lessors of restaurant premises at Cabramatta. By lease dated 5 September 1996 they granted a lease for a term of seven years to the defendant/lessee Guardian Group Australia Pty Limited, as it is now known, to conduct its restaurant business from these premises. The lease included an option for renewal for a further term of seven years on the same terms, and provided for the rent to be determined by a valuer if not agreed between the parties in respect of the option term.

2 On 27 May 2003 the lessee served notice pursuant to the option for renewal of the lease. The lessors disputed that the lease was validly exercised. By summons filed on 15 September 2003, Guardian commenced proceedings 4851/03 in this Court (“the specific performance proceedings”) claiming a declaration that it had validly exercised the option, and orders for specific performance of the resulting agreement.

3 Since then a number of things have happened, which at this stage may be summarised as follows. First, the lessors have conceded that the option was validly exercised. Secondly, the quantum of rent has been submitted to a valuer to be determined apparently in accordance with the procedure provided for by the lease, and the valuer has issued a determination of that rent for the first year of the option. Thirdly, the lessors have submitted a lease for execution by the lessee, which the lessors say is pursuant to the option for renewal. Fourthly, the lessee refuses to execute the lease which has been submitted, contending that it is not in accordance with the terms of the lease to which it is entitled pursuant to the option, in particular by reason that it does not contain a perpetual option. Fifthly, the lessors have served a creditors' statutory demand for arrears of rent calculated in accordance with the valuer's determination and, that demand not having been complied with, the lessors have commenced the winding-up proceedings in which they claim an order for the winding-up of the lessee.

4 In those circumstances, the lessee, on Monday 14 November, when the specific performance proceedings were otherwise before the Court on the return of a motion brought by the lessors for leave to file a cross-claim and for security for costs, had the proceedings referred to the Duty Judge, in order to seek an injunction restraining the prosecution of the winding-up proceedings.

5 After a short hearing that day, and after hearing some submissions, in the specific performance proceedings, by consent, I made a declaration to the effect that the option had been validly exercised, and I also ordered that the lessors pay the lessee's costs up to and including 22 October 2003, reserving further consideration of the balance of the summons, including the question of costs after 22 October 2003. In the winding-up proceedings, I restrained the lessors from advertising or causing to be advertised the winding-up summons, or from notifying ASIC of the filing of the summons, up to and including 16 November 2005, which order has since been extended until today. I made directions for the filing and service of a Notice of Motion and supporting affidavits in respect of the claim for dismissal or stay of the winding-up proceedings.

6 On Wednesday 16 November 2005, Guardian moved on its interlocutory process in the winding-up proceedings for their dismissal as an abuse of process, or alternatively for an injunction restraining advertisement. Subsequently, that interlocutory process has been amended to add an alternative claim for an order pursuant to Corporations Act, s 459S permitting Guardian to raise in defence of the winding-up proceedings a ground which it could have but did not raise on an application to set aside the creditors' statutory demand, namely that the debt the subject of that demand is the subject of a bona fide dispute.

7 The hearing of Guardian's interlocutory application proceeded throughout yesterday and this morning. Cross-examination was permitted, notwithstanding that strictly speaking, the application was of an interlocutory nature. Virtually all of the evidence which would be relevant on a final hearing of the specific performance proceedings (save for that relating to the actual exercise of the option which, in light of the consent declaration made on Monday, is no longer an issue) was tendered.

8 The specific performance proceedings are also before me for further consideration. Today, there were also before the Court motions in the specific performance proceedings by the lessors (for leave to file a cross-claim - essentially for rectification of the lease to omit the clause which might result in a perpetual option, but also for relief consequent upon the claimed arrears of rent - and for security for costs), and by Guardian (for reference of the specific performance proceedings to mediation, and for an order that those proceedings continue on pleadings).

9 What should be done in the specific performance proceedings may well be clarified by the outcome of Guardian's application in the winding-up proceedings, since fundamental to that application is whether there is a genuine dispute about arrears of rent. Accordingly, I shall first address that application. In order to do so, it is necessary to refer now in greater detail to the course of events since the purported exercise of the option on 27 May 2003.

10 As I have said, Guardian commenced the specific performance proceedings on 15 September 2003 claiming, inter alia, a declaration that the option had been validly exercised and specific performance of the option. Before Guardian commenced the specific performance proceedings, its solicitors wrote to the then solicitors for the lessors in terms which included the following:

82. The Lessee requires the Lessor to nominate the Commencement Rental payable for the Lease for the renewed term for approval by the Lessee.

83. Where the parties fail to agree in respect of the Commencement Rental of the renewed lease, the market rental shall be determined by the mechanism as set out in item 2 in Annexure “A” to the Lease.

11 On 7 October 2003, Henshaws, the solicitors then acting for the lessors, wrote to Eric Fung & Co, the solicitors who have throughout acted for Guardian, in the following terms [sic]:

Even though our clients deny that your client have the right to exercise their right of renewal, which will be determined by the Court or Tribunal, we have to do our best to assist the Court in finalising all issues quickly at the hearing. Under clause 33 of the lease in dispute, the rental for the first year of the option shall be agreed or determined by a qualified valuer as to the current market rental of the premises, and therefore we should work out the current market rental applicable to the premises for any period after 5 September 2003 so the Court may deal with the issues in one goal without making further adjournment after the issue of renewal has been resolved.

12 The letter proceeded to assert a current market rental of $495,000 per annum plus GST, and pointed out that under clause 33 of the lease, Guardian could nominate a qualified valuer jointly with the lessors to work out the current market rental, if no agreement could be reached. A reply as soon as practical was requested. The letter was marked "open letter (without admission)". I accept that at that stage there was no admission on behalf of the lessors that the option had been exercised and that that matter was then in dispute. The effect of what the lessors proposed, if accepted, was that the parties would proceed to resolve the question of the quantum of rent, so that once the issue of renewal was resolved, there would already be an agreed rent, not requiring further determination.

13 The specific performance proceedings came before the Court on the return of the summons on 14 October 2003. That day the Court made notations and orders in accordance with short minutes, the relevant effect of which was to note an undertaking by the lessors to the Court that they would not, without the prior consent of Guardian, obstruct or otherwise interfere with Guardian's quiet enjoyment of the premises, or terminate or purport to terminate the tenancy of the premises, or give any notice to convert or purport to convert that tenancy into a tenancy or some other right determinable at will, or re-enter or purport to re-enter the premises, and also to note the agreement of the parties that pending the determination of the proceedings or until the further order of the Court: -

(a) the Plaintiff shall continue to tender as rent payment to the Defendants for the continued occupation and use of the Premises;

(b) the Defendants shall be at liberty to receive such payments from the Plaintiff either as rent or mesne profits;

(c) the tender and receipt of these payments shall be without prejudice to the parties' respective contentions in the proceedings including their respective contentions as to the characterisation of these payments and shall abide the determination of the Court or the agreement of the parties as to the true character of these payments.

14 Directions were also made for the filing and service of the affidavits and any cross-claim, and the proceedings were adjourned to 25 November 2003. The effect of the agreement reflected in those short minutes was that pending the determination of the proceedings, Guardian would continue to pay rent (although the amount was not specified), and that the characterisation of that amount (which Guardian would allege was rent under the renewed lease, and the lessor at that stage would allege was an occupation fee for mesne profits, but alternatively would accept on account of rent if it were determined that there was a new lease) was left open.

15 Not long thereafter, the lessors received counsel's advice as to their position in the specific performance proceedings, and as a result decided to concede that the option had been exercised validly and effectively. Thus, on 22 October 2003 Henshaws wrote to Eric Fung, relevantly in the following terms [sic]: -

We have obtained Counsel's Advice on the conduct of the proceedings and our clients agree to adopt a much quicker and appropriate manner in resolving the disputes arising from the lease ... in order to save unnecessary costs, effort and time to be spent on both parties. Our clients agreed to give your client the option to renew the subject Lease as provided by Clause 33 of the said Lease. The procedures how to determine the new rental has been set out in item 2 of the Schedule referred to the Lease that your client must follow if your client still insist they have validly exercised the option and they really wish to renew the lease rather than delaying the re-possession by our clients.

16 The letter proceeded again to assert a proposed new rental of $550 “per square metre per year plus GST and all other necessary outgoings" and gave Guardian seven days to consider the proposed new rental: -

failing which our clients will appoint a qualified valuer to carry out the valuation as the final determination under item 2 of the Schedule of the subject Lease. Your client have to give us their feedback urgently if they wish to show their intention to renew rather than delaying tactics.

17 The letter is marked "open letter (without admission)". It is quite clear that the letter was invoking the mechanism referred to in the lease for determination of the rent where the parties were unable to agree. The "without admission" is a statement to the effect that "although we do not admit that we are bound to give you a new lease, we are going to give you one and not argue that issue any longer. The only remaining question is what is the rent".

18 Despite the request for urgent feedback, there seems to have been no reply by 10 November 2003, when Henshaws again wrote to Eric Fung, observing there had been no reply to the letter of 22 October 2003 and continuing:

In accordance with the provisions as contained in the subject Lease regarding the option of renewal (item 2), we are instructed to inform your client that as the new rental cannot be agreed, our clients will nominate the following qualified valuer to carry out a valuation of the market rental of the premises for the purposes of renewal.

19 Ms Tracey Le was nominated, and the letter required a written reply as to agreement or disagreement to the nomination by 14 November, foreshadowing that in default of response or in the event of disagreement, the lessors would request the President of the Australian Institute of Valuers & Economists to nominate a valuer, "and such valuation will be final and acceptable in accordance with Item 2 of the subject Lease". True it is that the letter proceeded to say that if a final valuation was available but the lessees still failed to accept the new lease, the lessors would apply to the Court for withdrawal of their undertaking "and will terminate the current hold over tenancy by serving one month's notice", but that does not alter the position that what was being done was the invocation of the rent determination procedure under the lease. The lessors were simply saying that if after they had performed all their obligations arising upon exercise of the option, Guardian failed to perform its by executing a new lease, then the lessors would return to Court and bring the tenancy to an end. That was a perfectly reasonable approach for the lessors to take, and in no way inconsistent with conceding an entitlement to a renewed term consequent upon exercise of the option.

20 On 14 November 2003, Eric Fung wrote to Henshaws, requesting a copy of the curriculum vitae of Ms Le "so that we can obtain instructions whether our client will agree to engage Ms Le to be the valuer in respect of the valuation of the market rental of the premises". There is nothing in that response to suggest that any valuation process was to be without prejudice, or was to be other than binding on the parties as the provisions of the lease contemplated.

21 On 17 November 2003 Henshaws responded, seeking "clearer indication whether your client is trying to work out the new rental for renewal of lease in accordance with provisions in item 2 of the subject Lease", before requesting Ms Le's curriculum vitae. It is clear that Henshaws were seeking an acknowledgment from Guardian that Guardian was, indeed, trying to work out the new rental for renewal in accordance with the lease, as were the lessors.

22 By another letter of the same date to Eric Fung, Henshaws pointed out that there had been non-compliance with the directions for filing of affidavits and continued [sic]: -

Your client claims that they have their right to renew the lease, in order to resolve the disputes, we have already notified you by our letter dated 22 October 2003 that a new lease can be worked out in accordance with the procedures of the subject Lease. We therefore failed to see any point your client need to continue with the captioned proceedings, however, you have never replied us as to your client's intention to work out a new lease.

23 That letter seems to me to deny the proposition, advanced on behalf of Guardian, that it was not until Ms Lu's affidavit of 11 May 2005 that it was clear that effective exercise of the option was conceded. At the latest, on 17 November 2003, the lessors had pointed out that there was no need to continue with the proceedings. In effect, the lessors were offering, for at least the second time, exactly what Guardian was claiming in the proceedings, namely, a renewed lease in respect of which the rent would be worked out in accordance with the regime established in the lease.

24 All then seems to have been quiet until 2 February 2004. The matter came before the Registrar on 25 November 2003 and was stood over to 18 December without directions, and then again to 7 February without directions.

25 On 2 February 2004, Henshaws wrote to the Australian Property Institute, seeking the nomination by that Institute of a valuer pursuant to the provisions of the lease. In their submissions, Guardian has sought to emphasise statements in that letter "One of the issues of the dispute relates to the option of renewal of the lease" and a reference in the letter to the lease having "expired". However, the first of those references is taken by Guardian’s submissions completely out of the context in which it appears. The full context is "One of the issues of the dispute relates to the option of renewal of the Lease and we are unable to agree on any new rental and therefore write to request for the President's Appointment as required by the provisions of the said Lease". It is clear from the whole context that the dispute about the option of renewal to which the author of the letter referred was the rent. The reference to the lease having expired is obviously a reference to the initial term having expired, as it indeed had. The context is: -

As the lease has been expired in September 2003 and that the lessee tried their best to delay the matter, we should be much obliged if you would render your assistance in arranging an appointment of valuation at your earliest convenience.

26 There is nothing in that letter inconsistent with the position of the lessors already twice stated, that they conceded a renewal of the lease and only sought to work out the rent.

27 On 17 February 2004, the Institute nominated one Mr Kenny as the valuer. On the same date the proceedings were adjourned without directions to 15 June 2004.

28 In or about May 2004 the lessors changed solicitors from Henshaws to Harpers. However, it is to be noted that absolutely nothing turns on this because the same solicitor, one Vincent Lam, retained the conduct of the matter, he obviously having moved from Henshaws to Harpers. On 26 May 2004, experts retained by Guardian prepared a submission to Mr Kenny which was dated that day. It is not clear to me that the submission was necessarily received by Mr Kenny that day. His report refers to the submission as bearing that date, but his appointment does not appear to have been finalised at that point.

29 On 9 June 2004, Mr Fung wrote a letter, apparently to Mr Kenny, which contained these statements: -

The plaintiff has objected to the rental nominated by the first and second defendants. The first and second defendants have activated the provisions under the Lease to appoint a valuer to appraise the market rental.

30 There is no suggestion in that material that this was anything other than an activation of the lease provisions for determination of the market rent.

31 On 11 June 2004, Mr Fung sent a letter to Harpers in which he stated: "Please issue the lease for the renewed term ... subject to the rental determination by Mr Kenny". This is consistent only with acknowledging that the renewed lease was to be issued and that the only outstanding issue was the rental determination in accordance with its provisions.

32 Between 30 June 2004 and 9 July there was correspondence between Kenny & Good and the parties, which resulted in both parties paying their share of the valuation fee and both parties executing an agreement with Kenny & Good which, inter alia, records that the rent determination, when completed and issued, would be final and binding on both and that no discussion would be entered into subsequently to the issue of the determination.

33 The lessors made their submissions to the valuer on or about 8 October 2004. Mr Kenny issued a determination on 10 December 2004, in which he determined that the rent for the first year of the option would be $198,000 per annum or $16,500 per month. The provisions of item 2 in the Lease Schedule have the result that that rent increases each year to 105 percent of its amount in the previous year.

34 Up to this point, there was nothing to suggest that the determination of rent was in any way without prejudice. There is nothing to suggest that the determination was not to be binding on the parties. It simply does not make sense to suggest that it was not to be binding on the parties, because the whole purpose of having a reference to an independent valuer was so that if the parties could not agree, then the rent would be determined by an independent valuer so as to bind both of them. In my view, it is just impossible to attribute sensibly to the parties an intention that they would retain a valuer for a fee of more than $10,000 because they were unable to agree on the rental, yet after the valuer had, at that cost, performed his task, each would be at liberty to walk away if it did not like the result.

35 On 3 January 2005, the lessors sent directly to the lessee a letter enclosing rental adjustment calculations, asserting that arrears of $92,131.61 remained outstanding, and demanding immediate payment. There was no response.

36 On 24 January 2005, Harpers wrote to Eric Fung, referring to Mr Kenny's determination, noting that despite the long lapse of time nothing yet had been heard about Guardian's decision as to signing of a new lease based on the new market rental and continuing:-

We are therefore instructed to give your client notice which we hereby do, that unless your client serve on us through your firm their formal notice within 7 days from the date hereof to accept the said rent determination report and request to sign the new lease based on the new rental, failing which we will accept that your client do not agree to the new rental as quoted on the report by the appointed valuer, and that your client is not intended to exercise their right of renewal under the Lease.

37 The effect of this letter is that, the rent now having been determined, it was in the hands of Guardian as to whether it accepted the new lease, which was available to it with the rental determined in accordance with the determination, or it rejected it, in which case it should vacate the premises. The letter is not inconsistent with there being a concession on the part of the lessors of a renewed term.

38 On 3 February 2005, Harpers wrote to Eric Fung demanding payment of rent calculated in accordance with the determination of Mr Kenny. No response was received to that request.

39 Meanwhile, when the matter came before the Court for directions on 15 February 2005, the Registrar, by consent, made directions for the filing of the plaintiff's affidavit evidence by 22 March and for evidence in reply. The plaintiff, at the expiration of that five week period, filed two affidavits, which had been sworn in September 2003 at the time when the summons was filed. The defendants' affidavit was filed on 11 May 2005, and in it Ms Lu, in paragraph 6, again said that, considering it not worth while spending time and costs in disputing the claim of exercise of the option, "We therefore instructed our former solicitors write to the Plaintiff’s solicitor by open letter dated 22 October 2003", the terms of which I have already set out. Although the balance of the sentence in paragraph 6 was struck out, nonetheless, for the purpose of what it communicated to Guardian, I am entitled to note that it continued, "We agreed to give them option of renewal of the expired lease and the only issues outstanding would be determination of the rental which has been set out in item 2 of the Schedule". Yet again, thus, the lessors communicated to Guardian that there was no issue about a renewed lease, and that the only matter for determination was the question of rent.

40 On 30 May 2005, the proceedings were placed in the call over list. In July 2005 Harpers ceased to act for Guardian, who next retained Duncan Cotterill. On 19 August 2005, Duncan Cotterill submitted to Mr Fung a draft lease for the option term for execution. Mr Fung replied on 9 September 2005, inter alia that Guardian "either does not admit or deny the liability of and the quantum of the alleged rent arrears." I accept that this was intended to be a denial or alternatively non-admission of the amount of the alleged rent arrears. However, nowhere does any basis for disputing that amount appear from the letter.

41 On 13 September 2005 Duncan Cotterill responded, asking on what basis Guardian disputed liability for the arrears, and questioning whether it was asserting that it was not bound by the option lease. It is implicit, if not explicit, in that response that the lessors were propounding the position that the option had been exercised and there was an option lease with the rent as determined by Mr Kenny, and what they were seeking was to ascertain whether the lessee agreed that there was such a lease, or was attempting somehow to evade the consequence which it had originally sought by filing the summons in the specific performance proceedings. Those proceedings came before the Court for call over on 15 September 2005, when they were adjourned for further call over on a date in October.

42 Meanwhile, on 7 October 2005, the lessors swore an affidavit verifying a creditors’ statutory demand addressed to Guardian for what the lessors claimed were the arrears of rent calculated in accordance with Mr Kenny’s valuation. That demand was served by post on 10 October 2005 and apparently received at Guardian's registered office on 13 October.

43 It would seem that when the creditors’ statutory demand was received in a registered mail envelope by the accountant whose office serves as Guardian's registered office, he asked an employee, one Miss Ngo, to contact the principal of the Guardian and ask for the mail to be collected. The accountant did not open the letter, and did not know that it contained a creditor’s statutory demand. Although, at one stage, there was a suggestion that because this accountant was not only the accountant for Guardian, but also the accountant for the lessor, there was some conflict and perhaps even some impropriety involved in his office, that issue was quite properly not pursued after the evidence had been given and it became apparent that there was no such impropriety and, indeed, that the accountant was not even aware of the contents of the registered letter. It would seem that Ms Ngo telephoned someone at some premises operated by Guardian on 19 October 2005 but I completely accept that it was not until 10 November 2005 that any director of Guardian became aware of the creditors’ statutory demand.

44 On 11 October, Mr Fung responded to Duncan Cotterill's letter of 13 September, asserting that the valuation mechanism activated by the lessor had been on a “without admission” basis, and not as part of the specific performance proceedings, nor pursuant to any order sought in the summons, and that it could therefore not be relied upon by the lessors. So far as I can ascertain from the evidence, this was the first occasion on which any such assertion was made.

45 At the October callover, the specific performance proceedings were stood over to a call over on 16 November. Meanwhile, however, on 12 October, the lessors filed a Notice of Motion seeking leave to file a cross-claim, which included claims for rectification of the lease (to the effect that the option clause would not appear in subsequent leases, so that there would not be a perpetual option), for judgment for possession of the premises, for leave to issue a writ of possession, and for "judgment for the cross-claimant in the sum of $131,970.98", which was the alleged arrears of rent, and which was also, in substance, the subject matter of the creditors’ statutory demand. In their Notice of Motion, the lessors also sought security for costs of the specific performance proceedings.

46 On 26 October 2005, Duncan Cotterill had written to Mr Fung, responding at length to his contention that the valuation mechanism was activated on a without admission basis and comprehensively refuting that assertion with reference to the earlier correspondence.

47 Mr Lim, Guardian’s principal, returned from overseas on 9 November, and it would seem first learnt of the creditor’s statutory demand in a conversation with Mr Fung on or about 10 November 2005.

48 On 11 November 2005, Guardian filed its Notice of Motion for an order referring the proceedings to mediation and, somewhat curiously, also for an order that the proceedings continue on pleadings. Duncan Cotterill forwarded, at 4.50pm, a copy of the originating process in the winding-up proceedings, indicating that it was proposed to file it on 14 November. Mr Fung responded at 9.27am on 14 November, asserting that it was an abuse of process and seeking an undertaking not to file it without prior notice. By about 10 o'clock that morning, however, the originating process had been filed. It was in that context that, when the lessors’ motion for leave to file a cross-claim and security for costs was listed before the Registrar on the morning of 14 November, the matter came before me as Duty Judge, and I made the interim orders to which I have already referred.

49 The first and fundamental issue is whether the valuation process was, as Guardian contends, undertaken on a “without admission” basis.

50 For that contention, Guardian relies primarily on Henshaws’ letter of 7 October 2003. It is true that, at that point, what was proposed was on a without admissions basis, because the lessors were not then conceding that the option had been exercised. However, there is not the slightest evidence that the proposal put forward on 7 October 2000 was accepted by Guardian. There was silence. There was no response.

51 The position changed with the correspondence of 22 October 2003. The agreement recorded in the short minutes of 14 October did not stipulate the amount of rent which was to be paid. The correspondence of 22 October concedes a renewed lease and proposes the invocation of the mechanism under the lease for determination of the rent under the option lease. The lessors were thereby offering to perform their obligations, on the basis that the option had been exercised - an offer which was repeated more than once thereafter. It is hardly possible to see how it can be said that Guardian participated in this process on “without admission” basis when, for the most part, Guardian did not simply respond, and when it did respond, it did not indicate in any way that its acceptance was on a without admissions, without prejudice or any other basis than the due implementation of the rent fixing regime provided by the lease.

52 To the extent that there is any indication, the letter seeking Ms Le's curriculum vitae [paragraph 20 above], the instructions to Mr Kenny [paragraph 29 above], the correspondence requesting issue of a new lease subject to the rent to be determined by Mr Kenny [paragraph 31 above], and the terms of the agreement with Mr Kenny [paragraph 32 above], all strongly favour the view that the Guardian was participating in this process on the basis that it was, indeed, the process envisaged by and under the renewed lease. Further support for this conclusion is to be derived from the circumstance that there was no dispute about the determination until 11 October 2005.

53 Guardian has submitted that a different view should be taken, because the specific performance proceedings remained on foot. I have already referred to the desultory way in which those proceedings were prosecuted. The fact that proceedings are on foot between parties does not mean that the legal relationship between them is frozen in time, or suspended. The parties can still alter their legal relationships and positions by acts taken under a contract which remains on foot notwithstanding the pendency of legal proceedings. What they cannot do is resort to a self help remedy when a remedy is being sought in a court, but that is not what has happened here.

54 Guardian argues that the agreement noted by the Court on 14 October has not been displaced. That may well be so, but that agreement does not cover the subject matter presently in dispute. That was an agreement to continue to pay an unspecified amount of rent (but presumably the amount payable under the lease) and a recognition that it would be received on account of whatever ultimately turned out to be the correct characterisation of that payment. It was not inconsistent with that agreement for the parties by their conduct, during its pendency, to clarify or even alter the legal position in which they stood vis-a-vis the other.

55 The outstanding issue, as to whether there is a perpetual option, cannot affect the amount of rent, which is not dependent on whether there are one or more options to renew under the lease.

56 The only basis which has been suggested for any dispute about the claimed arrears of rent is that the rent has not been determined for the purposes of and in accordance with the lease. For the reasons explained above, I am satisfied that there is no reasonable argument to that effect. Given the correspondence to which I have referred prior to 11 October this year, I am not satisfied that there is a genuine dispute to that effect. I am, accordingly, compelled to conclude there is no bona fide dispute on reasonable grounds about the arrears of rent.

57 Nonetheless, there are other arguments advanced on behalf of Guardian, the most significant of which is that it is suggested that the winding-up proceedings are an abuse of process because they duplicate the claim foreshadowed in the proposed cross-claim for arrears of rent.

58 Generally speaking, it may be accepted that where a creditor has commenced an action at law to recover a debt and simultaneously commences winding-up proceedings in relation to the same debt, the winding-up proceedings are an abuse of process, but this is not an invariable rule. In Wilson Market Research Pty Ltd and the Corporations Law (1996) 39 NSWLR 311, Santow J [at 317] referred first to the judgment of Needham J in Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 911, 913 in which his Honour had said that it seemed an abuse of process to claim a sum of money in a common law claim and then to seek to wind the company up by parallel proceedings in Equity because of the failure to pay the same sum. Santow J then referred to what had been said by Master Adams in Mala Pty Ltd v Johnston (1995) 13 ACLC 100 [at 102], which Santow J thought correctly explained that not every case of parallel proceedings was an abuse of process. In Milano v J D Holdings [2001] NSWSC 899, Master Macready, as his Honour then was, referred to these authorities, noting from the judgment of Master Adams in Mala that it was prima facie an abuse of process for a party to institute two proceedings for the one claim - prima facie, because there can be an explanation why two proceedings are issued, and it is a matter for the Court to determine whether the explanation is sufficient.

59 I am of the view that the general rule is not applicable in the present case or, alternatively, if it is, that there is a sufficient explanation.

60 It is not applicable because, notwithstanding the motion for leave to bring a cross-claim, in fact, that application has not been heard, and no parallel proceedings are on foot. No cross-claim for the debt has been instituted, and the creditor has instead proceeded by serving a creditors’ statutory demand and filing winding-up proceedings. It is not impermissible for a creditor to contemplate, and even threaten, and perhaps even bring a claim at law for a sum of money, but then, recognising that there is no bona fide dispute about it, to decide instead to proceed by way of service of a creditors’ statutory demand.

61 And in this case, even if the cross-claim, leave to file which is sought had been filed, there is a sufficient explanation for the separate proceedings. While in many cases it may be an abuse of process to bring duplicate proceedings, it is not so here, because, first, the claim for the judgment for the arrears of rent is only subsidiary and incidental to the substance of the proposed cross-claim, which is primarily concerned with the rectification and possession remedies which could not be obtained in winding-up proceedings: the claim for the money sum is incidental to, but severable from those claims. I do not think it is an abuse to maintain the claim for possession, and incidental to it a claim for judgment for a money sum, notwithstanding that a statutory demand has been served and that winding-up proceedings are also brought.

62 Moreover, this is a case in which, as things have turned out, given their repeated offers to perform their obligations as if the option had been validly exercised, the lessors are entitled to be frustrated at the total lack of progress in having the rent put into order. They reasonably conclude that, despite offering to do exactly what Guardian is entitled to have them do upon assumption that Guardian's contentions are correct, Guardian nonetheless refuses to do its part. Rather, Guardian says that it wants to proceed to trial in the specific performance proceedings - which the lessors rightly see as unnecessary. In those circumstances, I do not think it is an abuse of process for them to rely on a creditors’ statutory demand and commence winding-up proceedings in respect of a severable part of the dispute.

63 Guardian advances an additional argument that there is an abuse of process, arising from the circumstances in which the proceedings were instituted. To me, it seems that Guardian's case is put at its highest by analogy with the judgment of Ipp J, as his Honour then was as a judge of the Supreme Court of Western Australia, in Re Bond Corporation Holdings Ltd (1990) 1 ACSR 350. In that case, his Honour observed that the winding-up petition had been filed at the last possible moment before the New Year’s Eve weekend, without notice, when solicitors had been acting for both parties for months, it being unusual for a step of such gravity taken without the solicitors for one party first advising the other. It had been known for months that the debt on which the petition was based was disputed, and a pleading had been filed a month earlier which made clear the nature of the dispute. His Honour said that this was a totally inappropriate context for the winding-up process to be employed, that obvious widespread publicity to a very well known company would ensue and cause incalculable harm, and that the timing of the filing of the petition immediately before the New Year weekend would deprive the company of recourse to the courts for several days, it being far from apparent that there was any urgency or even any convincing evidence of insolvency.

64 I fully accept that in many cases it may well be an abuse of process to institute winding-up proceedings in parallel to debt recovery proceedings. In the words of Mr Young, who appeared for Guardian, “They toss a grenade into the room by launching winding-up proceedings when parties are otherwise litigating”. But each case is dependent on its own facts. While there are some similarities between the circumstances in Bond Corporation and the present, there are also some fundamental differences. The most important difference is that in that case there was a dispute about the debt on substantial grounds. In this case there is not.

65 It will sufficiently be apparent, from the history which I have recited, that it is significant in this case that the lessors' have made repeated offers to do what they were obliged to do if the option had been exercised and Guardian has failed to give any attention or response to those offers. It is a legitimate inference that Guardian wish to delay, as long as possible, the determination of rent under the option which they claim to seek to enforce in the specific performance proceedings.

66 In those circumstances, it seems to me, that while it may well have imposed pressure on Guardian for the lessors to have proceeded as they did that was a step which, in the particular special circumstances of this case, they were entitled to take.

67 As I have said, I accept that Guardian received notice of the creditors’ statutory demand only on 10 November. That is a consequence of the mechanisms which Guardian had in place for the receipt of notices at its registered office. Those matters are ultimately matters for which Guardian and not the creditor is responsible, and the fact that a creditor serves a demand at a registered office which does not come to the notice of the corporation cannot convert the commencement of winding-up proceedings based on it into an abuse of process.

68 I accept also that such notice as was given on the evening of Friday 11 November allowed no real time for Guardian to do anything before 14 November when the summons was filed. However, strictly speaking, there was no obligation to give notice of intention to file a summons at all. Nonetheless, I have approached this case on the basis that it makes no difference that the summons was filed on 14 November, and as if I were considering whether I would grant an injunction today to restrain a filing of a summons proposed to be filed tomorrow. It will be apparent from what I have said that I would not do so.

69 As I have said, Guardian also seeks an order under Corporations Act 2001 (Cth) (the Act), s 459S for leave to raise in defence of the winding-up proceedings a ground which it could have raised on an application to set aside the creditors’ statutory demand, namely, that the debt claimed was the subject of a bona fide dispute. As I indicated in DAG International Pty Ltd v DAG International Group [2005] NSWSC 1036, on an application for leave under s 459S of the Act, there are three essential issues. The first is whether there is a serious question to be tried on the ground now sought to be raised which might have been raised on an application to set aside the statutory demand. Here that involves a preliminary consideration of the company's basis for contending that the debt is the subject of a bona fide dispute, though it does not require decision at this stage, whether there is, in fact, a bona fide dispute. The second issue is whether there is, and the sufficiency of, any explanation for the ground not having been raised earlier. The third is whether the ground now sought to be raised in defence of the winding-up application is material to proving that the corporation is solvent.

70 Having regard to the finding of fact which I have made as to when Guardian received notice of the creditors’ statutory demand, I would be completely satisfied that Guardian succeeded on the second issue. However, as I have concluded that there is, in fact, not a bona fide dispute on reasonable grounds about the debt claimed, I do not see that it is necessary for me to further consider whether it is arguable that there is such a dispute. Guardian, therefore, fails on the first issue.

71 As to the third issue, and despite Mr Young's submission that whether or not this debt exists might be relevant to proof of solvency in defence of the winding-up summons, the effect of s 459S(2) of the Act is that I may not make an order under the section unless I am satisfied that the ground is material to proving that the company is solvent. So far as the evidence goes, the assets of the company on Mr Lim's version massively exceed its liabilities, and whether or not this particular debt exists would not apparently make any difference on the question of the solvency. In those circumstances, I think Switz v Glowbind Pty Ltd (2000) 33 ACSR 723 compels me to find that Guardian fails on the third issue also.

72 Accordingly, in proceedings 5835/05, I make the following orders:-

(1) Order that the amended interlocutory process filed in Court today be dismissed.

(2) Order that the defendant pay the plaintiffs' costs of the motion.

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73 I have this morning given judgment dismissing Guardian’s claim for an order staying or dismissing the winding-up proceedings. One consequence of that judgment is to resolve what seem to be the remaining issues in the specific performance proceedings. I cannot think that the interests of any party is served by avoiding determining those proceedings now and leaving the unsuccessful party to incur still further costs with further adjournments. Accordingly, it is appropriate that I proceed in the specific performance proceedings to make orders based on the finding which I have made today in the winding-up proceedings.

74 The first matter is the Guardian’s Notice of Motion filed on 11 November 2005 in which it seeks a reference of the proceedings to mediation and an order that the proceedings continue on pleadings. As I am about finally to determine the proceedings, that relief is inappropriate and unnecessary. That motion will therefore be dismissed.

75 The next matter is the motion of the lessors, Mr and Mrs Lu, filed on 11 October 2005, in which they seek security for costs and leave to file a cross-claim. Once again, as the proceedings are about to be finally determined, security for costs, if it ever was appropriate, is not now appropriate. The application is, in any event, brought at a very late stage, and there is no evidence before the Court of any estimate of costs. Insofar as it seeks security for costs, that motion too will be dismissed.

76 The balance of that motion seeks leave to file a cross-claim, which claims, first, rectification of the lease so as to omit the clause which might give rise to a perpetual option; secondly, possession of the restaurant premises; and thirdly, judgment for the arrears of rent. The claim for judgment for the arrears of rent is not pressed, in light of the subsequent deployment of a creditors’ statutory demand and the commencement of the winding-up proceedings. A claim for possession can be brought, if at all, in separate proceedings, and the refusal of leave to bring that claim at this late stage in these proceedings is not to be taken as intending to preclude such proceedings being brought separately. It is appropriate to grant leave to file the cross-claim only insofar as it seeks rectification, because the rectification issue is clearly related to the finalisation of the terms of the renewed lease - which I propose to refer to an Associate Judge in any event.

77 Accordingly, I make the following orders:-

(1) Order that the plaintiff’s Notice of Motion filed on 11 November 2005 be dismissed.

(2) On the defendants’ Notice of Motion filed on 7 October 2005, order that the defendants have leave to file a cross-claim in the form of Annexure D to the affidavit of Alice Lu sworn on 7 October 2005, but limited in the relief claimed to that claimed in paragraph 1 of that draft cross-claim, and omitting therefrom the claims for relief in paragraphs 2, 3, 4 and 5 thereof.

(3) Order that the defendants' motion filed 7 October 2005 be otherwise dismissed.

(4) No order as to costs of each of the said motions, to the intent that each party bear its own costs of those motions.

(5) On the summons filed 15 September 2003, order that insofar as it remains to be performed, the agreement between the defendants as lessors and grantors and the plaintiff as lessee and grantee for the grant of a renewed lease pursuant to the exercise of the option for which clause 33 of Annexure A to registered lease number 3025583 be specifically performed and carried into execution.

(6) Declare that for the purposes of the renewed lease, the rent for the first year of the renewed term is $198,000 per annum.

(7) Order that it be referred to an Associate Judge to settle the terms of the renewed lease to the extent that the parties are unable to agree, including any cross-claim for rectification brought pursuant to the leave granted in order (2) above.

78 On the question of costs, it will be apparent from my earlier reasons that I have taken the view that Guardian could have obtained the relief which it has ultimately obtained many months ago, by accepting the offers which were openly made to it. The incurring of costs since 23 October 2003 has been as a result of Guardian's refusal to accept offers which were reasonably made. In those circumstances, Guardian is not entitled to its costs, and ought to pay the lessors' costs of the proceedings from that date.

79 Those costs do not include the costs of obtaining the rental determination from the valuer, which fall to be dealt with by the provisions of the lease. I reject Mr Radojev's submission that the costs which I have already ordered that the lessors must pay, up to and including 22 October, should exclude those of affidavits prepared by that date though not filed until much later, because those affidavits were prepared when there was a live issue as to whether the lease had been effectively renewed or not, and in aid of what might well have been a necessary interlocutory application at that stage.

80 I should also order that the undertaking given by the defendants on 14 October 2003 be discharged.

81 Accordingly, I make the following further orders in proceedings 4851/03:-

(1) Order that except insofar as earlier orders, including my orders earlier today, have otherwise dealt with them, the plaintiff pay the defendants’ costs of the proceedings from 23 October 2003.

(2) Order that the undertaking given by the defendants on 14 October 2000 be discharged.

(3) Order that the exhibits may be returned.

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