IMO Nutshack Franchise Holdings Pty Ltd
[2011] VSC 561
•29 November 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
LIST E
S CI 2011 02850
IN THE MATTER of Nutshack Franchise Holdings Pty Ltd (ACN 089 270 762)
| NUTSHACK FRANCHISE HOLDINGS PTY LTD (ACN 089 270 762) | Plaintiff |
| v | |
| LEND LEASE REAL ESTATE INVESTMENTS LIMITED (ACN 063 427 896) and GREENSBOROUGH PTY LIMITED (ACN 114 349 763) | Defendants |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13 October 2011 | |
DATE OF JUDGMENT: | 29 November 2011 | |
CASE MAY BE CITED AS: | IMO Nutshack Franchise Holdings Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 561 | |
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CORPORATIONS – External administration – Application to set aside a statutory demand –pursuant to section 459J of the Corporations Act - Claim not a “debt” within the meaning of section 459E of the Corporations Act rather was a claim for damages which were not “readily calculable” – Demand set aside as being defective – Plaintiff also established genuine disputes in relation to the amounts demanded.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N. Jones | Comlaw |
| For the Defendants | Mr J. Richardson | Gadens Lawyers |
HIS HONOUR:
By an originating process filed 7 June 2011, the plaintiff, Nutshack Franchise Holdings Pty Ltd (“Nutshack”) makes application to set aside a statutory demand dated 18 May 2011 which had been served on it by the defendants, Lendlease Real Estate Investments Limited and Greensborough Pty Ltd. The application is made under s 459G, s 459H, s 459J, s 459L, s 459M and s 459N of the Corporations Act2001 (Cth) (“the Act”).
In support of its application, Nutshack relies on the affidavits of Stanley Gordon sworn 7 June 2011 and 6 October 2011. The defendants rely on the affidavits of Rebecca Lee Woods[1] sworn 16 September 2011 and 3 October 2011.
[1]Formerly Rebecca Lee Youlden.
The demand was served at the registered office of Nutshack on 19 May 2011. The application to set aside the demand was filed with the Court and served on the defendants’ solicitors on 7 June 2011 and has therefore been made within the time prescribed by s 459G of the Act.
The demand claims payment of a debt of $34,434.58 which is alleged to be owing pursuant to a lease of premises at Shop 139 at the Greensborough Plaza Shopping Centre in Greensborough (“the lease”). The schedule to the demand states that that amount is comprised of four categories as follows:
Loss of rent for the period 1 September 2010 to 7 November 2010 (being the expiry date of the lease)
$23,507.72
De-fit and make good costs as per Tax Invoice No. 00007911 dated 2 December 2010
$ 4,818.00
Hoarding costs as per Tax Invoice No. 00007065 dated 9 August 2010
$ 1,762.48
Legal costs pursuant to clause 16 of the lease
$ 4,346.38
TOTAL:
$34,434.58
The demand was accompanied by an affidavit of Rebecca Lee Youlden sworn 18 May 2011. Ms Youlden deposes that she is employed by “Lendlease Property Management (Lend Lease) as an Assistant Centre Manager”. She states that Lendlease manages the Greensborough Plaza Shopping Centre on behalf of the defendants, that the defendants are the owners of the centre and in her capacity as Assistant Centre Manager she assists in the day to day operations of the Centre.
Nutshack’s evidence in support of its application
In his affidavit of 7 June 2011, Mr Gordon raises several grounds for the application. First, he makes reference to the schedule of the demand describing the debt as being “outstanding moneys owed pursuant to a lease”. He states that on 13 July 2010, Nutshack was served with a notice pursuant to s 146 of the Property Law Act requiring Greensborough to remedy the breach specified in the notice, which was that, in breach of the requirement to keep the premises open for business during the hours specified in the lease, Nutshack closed the business on 12 July 2010 and had not re‑opened it since that date. On 4 August 2010, Gadens Lawyers, the defendants’ solicitors, served a Notice of Re-entry on Nutshack. The Notice of Re‑entry stated that the defendants “entered into and upon the premises, determined the lease” and “required Nutshack to quit and deliver up the premises”. Mr Gordon says that the effect of the notice was to terminate the lease as of that date.
Mr Gordon says that Nutshack disputes that the defendants are entitled to claim $23,507.72 for rent for the period 1 September 2010 to 7 November 2011 in the circumstances of the lease having been determined on 4 August 2010.
Mr Gordon deposes that on 12 January 2011, Gadens Lawyers wrote to Nutshack threatening commencement of recovery action in the event that the sum of $42,031.31 was not paid. In that letter, Gadens state that the lease in respect to the premises was determined by the Notice of Re-entry on 4 August 2010 and, that as a result of the early termination of the lease, the defendants have suffered loss and damage. Gadens then sets out in a table to that letter the quantification of that loss and damage, including loss of rent for the period 1 September 2010 to 7 November 2010 in the sum of $17,896.53 (whereas in the statutory demand, the sum of $23,507.72 is claimed as loss of rent for that period). Gadens’ letter also claims loss and damage for “de-fit” and make good costs of $9,009. The tax invoice of 2 December 2010 relating to the de-fit and make good costs which is referred to in the statutory demand, claims $9,009 in respect of that expense. Mr Gordon observes that in the statutory demand, those costs are claimed in the sum of $4,818, a difference of $4,191. A further head of loss and damage, described as hoarding costs, is said to be $1,168.48, yet in the schedule to the statutory demand those costs are claimed to be $1,762.48. The tax invoices relating to the de‑fit and make good costs and the hoarding costs pre-date Gadens’ letter of January 2011.
Mr Gordon concedes that while the defendants may have a claim in damages, they cannot have one in debt against Nutshack. In addition, it is said that the defendants failed to mitigate their loss by not taking steps to advertise and re-let the premises once the lease was determined on 4 August 2010. Mr Gordon says that by reference to Gadens’ letter of 12 January 2010, he believes that the defendant kept the premises deliberately unoccupied until on or after 7 November 2010 so as to be able to make a claim for loss of rent against Nutshack. Mr Gordon contends that by reason of the failure to mitigate the loss there is a “dispute” as defined by the Retail Leases Act which is not susceptible of adjudication at first instance in the Supreme Court but rather is required to be agitated in VCAT. Mr Gordon does not explain how the assertion as to failure to mitigate is made out by reference to the 12 January 2011 letter but it was submitted that it may inferred because of the absence of any claim by the defendants for costs incurred in attempting to re‑let the premises.
Mr Gordon complains that the schedule to the demand does not identify which provisions of the lease the outstanding moneys are owed and that once the lease was determined, no rent as such could be claimed by the defendants. In addition, Mr Gordon contends that the provision of the lease entitling the defendants to claim $4,818 for de-fit and make good costs in the schedule is not identified, nor is the source of the ability to make a claim for the hoarding costs in the sum of $1,762.48. He also complains that the demand does not identify the provision under which legal costs are sought.[2] He exhibits copies of tax invoices from Gadens to Lendlease Property Management (Australia) Pty Ltd of 30 July 2010, 31 August 2010 and 29 August 2010. Two of these invoices related to a period after the lease was at an end. Aside from the headings for the invoices, the Gadens invoices contain no narrative and are uninformative as to what legal work has been performed. Mr Gordon complains that it is not possible for him to determine whether or not these costs are reasonable legal costs and disputes those amounts claimed.
[2]The schedule to the demand identifies it as clause 16 of the lease but that provision is concerned with an obligation by Nutshack to pay the defendants’ reasonable costs and other costs arising out of any dealing under the lease, for example, assignment, survey fees and reasonable costs of considering the requests for approval or consent, i.e. not cost occasioned by breaches of the lease. Mr Gordon makes reference to this in his affidavit in reply.
Mr Gordon also complains that the deponent to the affidavit accompanying the statutory demand is not an employee of either of the defendants but of Lendlease Property Management Pty Ltd, presumably a related entity of the first named defendant, Lendlease Real Estate Investments Limited. He observes that the deponent to that affidavit, Ms Youlden, deposes that there is a debt owed pursuant to the lease when the lease was determined on 4 August 2010, despite the fact that the defendants’ solicitors had indicated before the swearing of that affidavit that the defendants’ claim was in loss and damage.
Mr Gordon makes reference to s 87(1) of the Retail Leases Act 2003 which provides that a retail tenancy dispute may only be the subject of proceedings before VCAT if the Small Business Commissioner has certified in writing that a mediation or another form of appropriate alternative dispute resolution under Part 10 of the Retail Leases Act has failed or is unlikely to resolve it. He also makes reference to s 89 of the Retail Leases Act, which provides that VCAT is the tribunal that has jurisdiction to hear and determine an application by a landlord or tenant under a retail premises lease seeking resolution of a retail tenancy dispute. Mr Gordon identifies the “dispute” as being the loss and damage sought to be recovered for the period 1 September 2010 to 7 November 2010 and the failure by the defendants to mitigate their loss. Mr Gordon states that no process under the Retail Leases Act2003 has been commenced by the defendants, nor has there been any request to mediate or take other appropriate form of dispute resolution, as the relevant provisions of that legislation require.
The defendant’s evidence
In opposition to the application, the defendants rely on two affidavits of Rebecca Lea Woods who, as noted above, swore the affidavit accompanying the statutory demand. In her affidavit of 16 September 2011, Ms Woods details the background to the matter. Ms Woods deposes that she is employed by Lend Lease Property Management Pty Ltd, which manages the Greensborough Centre on behalf of the defendants. The lease was entered into on 8 November 2005 and was for a period of five years. Ms Woods states that in mid‑July 2010, she instructed Ms Bradonjic of Gadens Lawyers to serve a notice pursuant to s 146 of the Property Law Act on Nutshack. She states that Nutshack had ceased trading from the premises on about 12 July 2010 and that the notice was served on 13 July 2011.[3] Ms Woods states that the breaches of the lease set out in the notice were not remedied and she instructed Gadens to determine the lease, which she deposes was done by Notice of Re-entry dated 4 August 2011.[4] The locks to the premises were changed on 5 August 2010.
[3]The affidavit states the date to be 13 July 2011 but this is clearly a typographical error and should be a reference to 13 July 2010.
[4]This date is also clearly a typographical error and should be a reference to 4 August 2010.
Ms Woods states that despite service of the Notice of Re-entry, Nutshack’s entire fit out remained in the premises at the time of service of the Notice of Re-entry and at the time of physical re-entry. The stock had been removed before actual re-entry. Nutshack has not made good the premises in accordance with its obligations under the lease. Because of this, Ms Woods states that the premises had to be secured by a hoarding at a cost of $1,762.48.
Ms Woods deposes that immediately after taking possession of the premises, she engaged the Greensborough Centre’s leasing personnel to source a replacement tenant and believes that the person responsible for this task, a Mr Lucas, starting showing the premises to a number of interested retailers from about August 2010. One tenant, John’s Nuts, agreed to lease the premises at the end of 2010 but was not prepared to take up possession of the premises and commence trading until the new year. John’s Nuts commenced trading from the new premises in May 2011. In her affidavit, Ms Woods details efforts made to locate a casual tenant for the premises which occurred at the end of November 2010.
Ms Woods states that in order for the casual tenant to take up occupation, arrangements were made for a partial de-fit of the premises to be carried out. She states that a complete de-fit would not have enabled the defendants to casually lease the premises and therefore generate income until John’s Nuts took up possession. The complete de-fit took place when John’s Nuts ultimately entered into possession. The de-fit took place in two stages: the first in or about December 2010 at a cost of $4,818 and the second, in April 2011, at a cost of $3,524.40. Ms Woods deposes that the defendants were not able to re-let the premises to a permanent tenant until such time as the premises were completely made good.
Ms Woods details the provisions of the lease which provided for what was to occur if Nutshack breached the lease. In particular, the lease provided for recovery of any loss the defendants suffered and provided for recovery from Nutshack of all costs and expenses, including legal costs and expenses on a solicitor and client basis, in connection with any default under the lease. In addition, clause 52 provides that if the lease was determined, the defendants may recover from Nutshack arrears up to the date of re-entry, the costs and expenses of re-letting the premises and the difference between the money payable under the lease and the money actually received as rent from another lessee.
Ms Woods agrees that she instructed Gadens to send a letter of demand to Nutshack in respect of costs and expenses totalling $42,031.31 incurred by the defendants as a result of the early termination of the lease. She details how the various amounts claimed were made up and confirms that those were costs incurred by the defendants relating to Nutshack’s breaches of the lease.
On 31 January 2011, Nutshack’s solicitors wrote to Gadens requesting further information in respect of the amounts referred to in Gadens’ letter of 12 January 2011 and this was responded to on 30 March 2011. That included details as to the appropriation of a bank guarantee provided as a requirement of the granting of the lease. Gadens demanded payment of a revised amount of $38,434.31.
Ms Woods states that the amount claimed in the demand, ($34,434.58), was less than amount previously demanded in Gadens’ letter of 30 March 2011, ($38,434.31) by reason that Ms Woods carried out a detailed reconciliation of the account relating to the lease and found that the arrears of rent for August 2010 had been absorbed by the bank guarantee and that the loss of rent for the period 5 August 2010 to 7 November 2010 was $23,507.72, rather than $17,896.53. She states that there has been no application from Nutshack seeking to challenge the quantum of the costs. Ms Woods concludes by deposing that, despite what paragraph 1 of the affidavit accompanying the demand states, she is employed by Lendlease Property Management Pty Ltd.[5]
[5]In the affidavit accompanying the statutory demand the words “Pty Ltd” are absent.
On 3 October 2011, Ms Woods swore a further affidavit. She states that she omitted to say in her earlier affidavit that the schedule which appears on page 2 of the demand made reference to loss of rent for the period 1 September 2010 to 7 November 2010, whereas the loss of rent in the amount of $23,507.72 is in fact for the period 5 August 2010 to 7 November 2010.[6] A spreadsheet exhibited to her affidavit reveals that the sum of $23,507.72, which is the major part of the defendants’ claim in the demand, rather than being comprised exclusively of rent as the demand describes it, is comprised of several categories of outgoings which include airconditioning, a marketing levy, operating expenses, water rates, council rates and water usage. Ms Woods concludes her affidavit by stating that she is employed by Lendlease Property Management (Australia) Pty Ltd, i.e. not Lend Lease Property Management Pty Ltd as she previously deposed.
[6]This amount totals $24,960.01 to which she credits the sum of $1,450.29 being the balance left over from the bank guarantee.
Nutshack’s evidence in reply
Mr Gordon’s affidavit in reply of 6 October 2011 recapitulates on occasion as to matters raised in his first affidavit, on others deposes to matters which, in my view, were not “raised”[7] in the first affidavit, and in other places, rather than deposing to evidence, take the form of submissions. Certain of the paragraphs which deal with matters which were not raised in the earlier affidavit are, if a broad view is taken, put in reply to Ms Woods’ affidavits. An example of this are paragraphs 11, 12, 13 and 14, which deal with the issue of the bank guarantee, to which Nutshack should be entitled to respond. Paragraphs 3, 4, and 6 however, are not in my view capable of being characterised in that regard and are inadmissible on the Graywinter principle. Paragraphs 16, 17, 18, 19, 20, 21 and 22 fall, in my view, in the same category as that dealing with the bank guarantee and are admissible. Mr Gordon, after summarising the various sums claimed by the defendants at different points in time complains that… “the figures just keep changing”.
[7]See Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 21 ACSR 581.
Mr Gordon criticises Ms Woods’ evidence, drawing attention to the concession by her of her misdescription of the period for which rental has been claimed as being 1 September 2010 to 7 November 2010 and to the misidentification of her employer in her earlier material.
Mr Gordon says that the claim for hoarding costs makes reference to an invoice which is not addressed to Nutshack. He states that there is no provision in the lease which gives the landlord the right to recover the hoarding costs and Nutshack did not request any hoarding to be placed on the premises. The issue in respect to the hoarding costs was raised in the first affidavit but not in the context of whether the invoice was directed to Nutshack or not. If the hoarding costs was a properly recoverable claim under the lease it would not, in my view, matter if the defendants or their agent were invoiced for the cost of such hoarding as they would presumably be entitled to recover it from the party liable to pay it if the lease contained a provision enabling recovery of such an outlay.
In conclusion, Mr Gordon’s affidavit revisits the issue of the defendants’ alleged failure to mitigate their loss by making reasonable or proper attempts to re‑let the premises, asserting that Nutshack has not seen any evidence of advertising of the premises, or of any real estate agents being retained for the purpose of re‑letting the premises.
Nutshack’s submissions
Counsel for Nutshack, Mr Jones, contended that the claim made by the defendants is not one in debt but rather is in the nature of a claim for unliquidated damages. He submits that those damages are not “readily calculable” and so do not come within the wider scope of what might be characterised as a debt in the present context on an application of the principles discussed by White J in Hansmar Investments Pty Ltd v Perpetual Trustee Co Limited.[8] As to the four categories which make up the alleged debt, Nutshack says that, more specifically, the amount claimed for rent of $23,507.72 is not rent as such as the lease had terminated in August 2010 and whatever amount might be considered to be owing will be in the nature of damages. Further, the dates mentioned of 1 September 2010 to 7 November 2010 cannot be correct in the circumstances and so much is conceded by the Ms Woods in her second affidavit where she states the amount claimed for loss of rent is in fact for the period 5 August 2010 to 7 November 2010.
[8](2007) 61 ACSR 321 at [34]-[60] esp at [55].
Further, the amount of $23,507.72 is now conceded to include various outgoings which are detailed in the spreadsheet to Ms Woods’ second affidavit. The amount claimed is comprised of components which could not be characterised as rent at all. That figure includes amounts for air-conditioning, marketing levy, operating expenses, water rates, council rates, and water usage totalling several thousand dollars. Mr Jones submits that, being a Retail Tenancy lease, compliance was required with s 46 of the Retail Leases Act which provides that in the absence of a statement in respect of outgoings being provided, such amounts are not recoverable. Further, the terms of the lease provided that a statement and tax invoice be provided in respect of outgoings and they were not.
In addition, Mr Jones says that the defendants are required to mitigate their loss and the evidence in this regard is scant and not developed. He submitted that the defendants do not state, for example, that the premises were advertised and there is no evidence of the requisite standard as to what steps were taken to lease the premises including evidence of expenditure incurred in connection with attempting to re-let the premises.
It was submitted that while damages for loss of rent may seem to be readily calculable, this cannot be done until it is established whether there has been mitigation of loss and, if so, what amount should be offset against the lost rental. In addition, Mr Jones submits that the amounts claimed for de‑fit and hoarding costs are also not readily calculable and no reference is made in the demand or the affidavit material filed by the defendants as to the source of the obligation to meet such costs. It was also submitted that there is no provision in the lease regarding expenditure on hoardings and de‑fit.
As to the legal costs which are sought to be recovered, Mr Jones submitted that clause 16 of the lease imposes no liability for payment of legal costs of the type contended for and this is now conceded to be the case by the defendants. While such liability for costs may fall within clause 52(j) of the lease, the criticism is made that the invoices exhibited to the defendants’ material in respect of legal costs provide no particularisation at all to enable an assessment as to whether such costs are reasonable, nor do they provide any narrative as to what work was carried out in connection with the amount claimed. The only notation on the invoices is that the work was done in respect of the lease of the premises but no description is given of the work done.
Mr Jones referred to a number of authorities which are said to stand for the proposition that moneys owing for rental subsequent to determination of the lease are to be characterised as recoverable by way of as damages and not rent and are not liquidated claims. In Business to all Australia Pty Ltd v North East Developments Pty Ltd,[9] an application was made to set aside a statutory demand by reliance on s 459J(1)(a) of the Act, which provides that the court may set aside a demand if it is satisfied that, because of a defect in the demand, substantial injustice will be caused unless the demand is set aside. In that case there was re‑entry after termination of the lease. The demand was set aside because first, it did not specify the provision which gave rise to the claimed debt; secondly, the demand purported to claim as a debt an amount referable to the entire period of the lease which would, had it not been terminated, have run for a further five years. Thirdly, given that the lease had ended, the description of the claim as a debt referrable to a period of some years after termination was self-evidently defective. Fourthly, substantial injustice would be caused unless the demand was set aside. Hammerschlag J stated:[10]
Even if the defendant has a claim, the lease having come to an end, that part of it referrable to the period after termination can only be one for unliquidated damages (subject to the defendant’s obligation to mitigate) and not in debt.
[9][2011] NSWSC 668 per Hammerschlag J.
[10]At [12].
In Business to All, the lessor’s solicitors had sent a letter stating that the lessor intended to recover rent for the balance of the term of the lease subject to its obligation to mitigate its losses and would also claim damages arising from repudiation. It was said that the letter served confirmed that the amount which the notice seeks to claim may span both rental which would be a debt, and unliquidated damages which would not. The Court considered that the nature of the defects was such that substantial injustice would be caused unless the demand was set aside.
In another case involving an application to set aside a statutory demand, Realty World Pty Ltd v Rovera Constructions Pty Ltd,[11] Higgins J stated[12] that following resumption of possession and control of the demised premises after the lessee had abandoned them, the lessor had terminated the lease and thereby converted its claim to ongoing rent into a claim for damages for the loss of the remainder of the term.[13] He stated that it followed that the claims for rent occurring after re‑entry were not claims for debt and could not be the subject of a statutory demand.[14]
[11](1998) ACTSC 30.
[12]At [80].
[13]Higgins J referred to his own decision in Leda Commercial Properties Pty Ltd v DHK Retailers Pty Ltd (1992) 111 FLR 81.
[14]Because of a jurisdictional issue of service of the application to set aside the statutory demand, the application was dismissed. See also Kay Investment Holdings Pty Ltd v North East Developments Pty Ltd [2011] NSWSC 1121 per Ward J where the statutory demand was set aside for similar reasons. See the discussion at 79-91.
The defendants’ submissions
In his submissions in opposition to the application, Mr Richardson also relied on the decision of Hansmar Investments Pty Ltd[15] contending that the sums demanded were readily calculable. He referred to paragraph [55] which stated:
In my view where under a contract a person promises to pay a specific or readily calculable sum which does not depend upon an assessment albeit that some is payable as liquidated damages for breach of contract, the person’s contractual liability is properly characterised as giving a rise to a debt in that sum.
[15][2007] 61 ACSR 321.
In Hansmar the claim was for money due pursuant to a contract for the sale of land. The relevant clause provided that:
The purchaser did not comply with the contract the vendor can terminate it by serving a notice and after termination the vendor can sue the purchaser either for damages for breach of contract or where the vendor has re‑sold the property under a contract made within 12 months after the termination to recover the deficiency of resale with credit for the deposit and the reasonable cost and expenses arising out of the purchaser’s non‑compliance with the contract.
In that case, no claim was made for costs and expenses and the calculation of the debt involved no element of opinion or assessment. It was simply the difference between the contract price between Permanent and the plaintiff less the deposit and less the price on re-sale.
I consider that the position is somewhat more complex in this instance and that the amount claimed is not readily susceptible of calculation. For example, legal costs are only recoverable if they are reasonable and there is no evidence at all in that regard. The sum owing for loss of rent is subject to the proper duty to mitigate which does not lend itself to ready and indisputable calculation and is further complicated by the fact that the amount claimed for rent involves various outgoings.
Mr Richardson says that, unlike the New South Wales authorities referred to by Mr Jones, the claim involved events which have already occurred and there was no prospective claim made for loss of rent into the future as there was in the other case. It is known that the premises are empty as are the number of days it was empty until it was re‑let.
Mr Richardson put it as high as that the dispute being contended for by Nutshack is not bona fide and was spurious. He based his submission in that regard on the fact that there had been correspondence from the defendants’ solicitors setting out in some detail the defendants’ claim to which there had been no response taking issue in regard to those matters.
Mr Richardson says that the absence of complaint over a number of months should lead the Court to conclude that the allegations of there being a genuine dispute, for which Nutshack bears the onus, should be rejected. He submits that Nutshack had all the information as to how the figure demanded was arrived at and was represented by lawyers. He submits that that should inform the genuineness of the alleged disputes.
Legal principles to be applied
The approach to be taken in the consideration of applications under s 459G of the Act has been the subject of numerous authorities. It is sufficient for current purposes to make reference to the decision of the Court of Appeal in TR Administration v Frank Marchetti & Sons Pty Ltd.[16] Dodds-Streeton AJ made reference to the statement by McLelland CJ in Eyota v Hanave Pty ltd,[17] one of the earliest authorities considering the issue, where His Honour stated:
It is however, necessary to consider the meaning of the expression ‘genuine dispute’ where it occurs in s 450H (sic). In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sorts of considerations as the ‘serious question to be tried’ criterion which arise 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 …’.
[16](2008) 66 ACSR 67 (“Marchetti”).
[17](1994) 12 ACSR 785.
Her Honour made similar observations as a member of the Trial Division of this Court in Powerhouse Australasia Pty Ltd v Viarc Pty Ltd,[18] where she observed at [49]:
“The dispute or offsetting claim should, as has been recognised, have some objective existence, and the [plaintiff] bears the onus of establishing the genuineness of the dispute or offsetting claim.”
[18][2006] VSC 508.
In the decision of the Full Court of the Federal Court of Australia in Spencer Constructions Pty Ltd v G&M Aldridge,[19] it was observed that:
“For a genuine dispute to exist, it must be ‘a bona fide and truly existing fact’, and the grounds for alleging its existence must be ‘real and not spurious, hypothetical or misconceived.’ The dispute should have sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile.”
[19](1997) 76 FCR 452 at 454.
In Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Pty Ltd (No. 2), Barrett J observed:
“Once the [plaintiff] shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The Court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.”
In JJMMR Pty Ltd v LG International Corporation,[20] the Court of Appeal of the Supreme Court of Queensland described the task of the Court as being to decide was whether there is a dispute or offsetting claim “such as would warrant subsequent adjudication.”
[20][2003] QCA 519.
In Yoogalu Pty Ltd v Intentia Australia Pty Ltd,[21] Barrett J observed:
“[The Court’s] sole function is to determine whether or not the state of account between the parties is (as to the particular matters referred to in s 459H(1)) so clear cut and uncontroversial that non payment of the sum demanded by the defendant should, entirely of itself and without further enquiry, mean that the plaintiff must, in a subsequent winding up proceeding, be regarded as insolvent unless it can itself affirmatively prove its solvency.
[21]Butterworths Cases 2006 05795.
My task in this application is to ascertain whether there are genuine disputes in respect of the debt the subject of demand, not to express any opinion which may embarrass any other Court subsequently considering the matter.[22] As Robson J stated in Rhagodia Pty Ltd v National Australia Bank Ltd[23]:
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond the perception of genuineness (or 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 simple – to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offseting claim (and not the likely result of it).”
[22] Spacorp Australia Pty Ltd v. Myer Stores Ltd (2001) 19 ACLC 1270 at [3]-[4]
[23][2008] VSC 195
I do not consider that it is open to me to find that Global’s alleged dispute and offsetting claim have been, to use the expression of McPherson JA in JJMR Pty Ltd v LG International Corp,[24] “manufactured or got up simply for the purpose of defeating the demand made against the company.” Nor am I persuaded that the disputes that it raises are not bona fide nor do I consider them to be “spurious hypothetical illusory or misconceived”.
[24][2003] QCA 519.
In my view, on an application of the principles cited above, the statutory demand should be set aside. First, I consider that the nature of the defendants’ claim is in the nature of one for damages and is therefore not susceptible of being the subject of a statutory demand. The claim for rent which forms the largest part by far of the demand is on an application of the authorities considered in paragraphs 31 to 33 above, not one in debt but for damages as it relates to a period after the lease had been terminated. I do not consider that such a claim despite its unliquidated character, is susceptible of being characterised as a “debt” within the meaning of S 459E of the Act on an application of the Hansmar principles referred to above as other factors such as mitigation of loss are brought into play and it is not “readily calculable”.
The inclusion of what is described as the claim for loss of rent when it is not a debt amounts to a defect in the demand in my view but the difficulties in regard to that part of the claim do not finish at that point. As Nutshack submits, the period claimed is not in any event correct and it transpires that that amount of the claim includes a sum said to be due for outgoings and not rent.
Further, I consider that Nutshack has made out that there are genuine disputes in respect of the amounts claimed for de‑fit, make good costs and hoarding costs. Such claims are probably also to be characterised as consequential loss and damage following on from the termination of the lease but in any event I consider that there are triable issues in respect of those parts of the sum demanded. As to legal costs, the demand misidentifies the provision pursuant to which such costs are payable and Nutshack is, in my view, entitled to test the reasonableness of that part of the claim. As Nutshack has observed, the bills contain no narrative to enable whether such costs are reasonable and again, they are probably to be characterised as in the nature of part of the loss and damages following on from the repudiation of the lease.
I will order that the statutory demand dated 18 May 2011 and served on the plaintiff by the defendants is set aside. Subject to hearing argument, the defendants are to pay the plaintiff’s costs of the proceeding including any reserved costs.
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