Ragi v Kiwi

[2005] NSWSC 798

CITATION:	Ragi v Kiwi [2005] NSWSC 798
HEARING DATE(S):	04/08/2005
JUDGMENT DATE :	4 August 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Associate Justice Macready at 1
DECISION:	Paragraph 27

CATCHWORDS:	Corporations Law. Application to set aside demand under s459Gof the Corporations Act. Consideratrion of whether breaches of the Retail Leases Act led to a debt or a claim for damages. Demand set aside.
PARTIES:	Ragi Pty Limited v Kiwi Munchies Pty Limited
FILE NUMBER(S):	SC 2007/2005
COUNSEL:	Mr R. Lovas for plaintiff Mr S.A. Wells for defendant
SOLICITORS:	Phang Legal Pty Limited for plaintiff KM Legal for defendant

LOWER COURT JURISDICTION:

- 1 -

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

ASSOCIATE JUSTICE MACREADY

THURSDAY 4 AUGUST 2005

2007/05 - RAGI PTY LIMITED v KIWI MUNCHIES PTY LIMITED

JUDGMENT

1 HIS HONOUR: This is an application under s 459G of the Corporations Act to set aside a statutory demand served by the defendant on the plaintiff. The demand was dated 28 February 2005 and claimed $13,944, being described as outgoings paid by the defendant as lessee to the plaintiff as lessor in contravention of the Retail Leases Act.

BACKGROUND FACTS

2 On 13 March 2001 Ms Paras and Ms Ualesi, representatives of the defendant, met Mr Ross, the letting agent of the plaintiff, at the subject premises. Later that day Ms Paras faxed Mr Ross with a suggestion that a lease be drawn in a certain way. Ms Paras expressly agreed to pay the outgoings in addition to the rent.

3 The next day, Ms Paras again faxed Mr Ross and said that “after careful consideration we are prepared to pay $500 per week plus GST plus outgoings (which I understand are approximately $448 per month).”

4 On 6 April 2001, the parties entered into a written lease. Under the heading “Outgoings” the lease provided for the payment by the defendant to the plaintiff of a fixed sum of $498 per month.

5 The relevant clause of the lease front page was as follows:

“(c) The percentage of outgoings referred to in clause 25A or the percentages of increases in outgoings referred to in clause 25B is $498 per month.”

6 The relevant clauses in the body of the lease were as follows:

“25A. By way of further rent the Lessee will pay to the Lessor on demand an amount equal to the percentage stated in clause 2(c) of the outgoings (as defined in clause 26)

or

25B By way of further rent the Lessee will pay to the Lessor on demand an amount equal to the percentage stated in clause 2(c) of all increases in the outgoings (as defined in clause 26) over the respective amounts assessed, charged or paid for the relevant rating, taxing or insurance period current at the commencement at the term of this lease.

26(a) For the purposes of clause 25A (if applicable) and clause 25B (if applicable) ‘the outgoings’ means all local council rates and charges, water, sewerage and drainage rates and charges not referred to elsewhere in this lease, and land tax, assessed, and all insurance premiums payable, in relation to the premises (or if the premises are only part of a property then in relation to that property)

(b) For the purposes of this clause 26 land tax shall be taken to be the tax which would have been payable if it had been assessed on the basis that

(i) the premises (or if the premises are only part of a property then that property) were the only land owned by the Lessor and were not subject to a special trust (within the meaning of the Land Tax Management Act 1956 , and

(ii) the Lessor was not a company classified under section 29 of that Act as a non-concessional company.”

7 One year later, on 6 April 2002, the lease term expired and thereafter the defendant remained in possession by holding over.

8 On 14 November 2003 the defendant vacated the premises.

9 During the period of occupancy, including the period of the holding over, the defendant paid to the plaintiff, amongst other amounts, a total of $13,944 in outgoings.

10 On 8 July 2004, the plaintiff commenced Local Court action against the defendant for a number of alleged debts arising from the former lease (including the holding over). Those debts include a sum of $1126.98 on account of outgoings. The defendant has defended those proceedings but so far there is no suggestion that the defendant intends to put on a cross-claim on account of the sums said in the statutory demand to be owing.

11 On 28 February 2005, the defendant served the statutory demand. The originating process was filed on 18 March 2005 within time.

12 The claim to set aside the statutory demand is based upon two propositions:

(a) That the claim in the demand is not in respect of a debt that was due and payable within the terms of s 459E.
(b) That there is a genuine dispute as to whether or not there is any amount due.

13 It is plain that the demand seeks recovery of the amount paid during the period of the lease by way of outgoings. It claims the amounts are payable because of what it says are breaches of the Retail Leases Act 1994. The relevant provisions of the Act are as follows:

“7. This Act Overrides Leases

This Act operates despite the provision of a lease. A provision of a lease is void to the extent that the provision is inconsistent with a provision of this Act. A provision of any agreement or arrangement between the parties to a lease is void to the extent that the provision would be void if it were in the lease.”

14 It is clear that all the section does is strike down offending provisions in leases.

15 Section 22 provides as follows:

“22. Recovery of Outgoings From Lessee

(1) The Lessee under a retail shop lease is not liable to pay any amount to the Lessor in respect of any outgoings except in accordance with provisions of the lease that specify:

(a) the outgoings that are to be regarded as recoverable, and

(b) how the amount of those outgoings will be determined and how they will be apportioned to the lessee, and

(c) how those outgoings or any part of them may be recovered by the Lessor from the Lessee.

(2) In this Part, the expression outgoings to which the Lessee contributes refers to any outgoings in respect of which the Lessee is liable under the lease to make any payment to the Lessor.

(3) Costs associated with the advertising or promotion of a retail shop or retail shopping centre, or of any business carried on there, are not outgoings for the purpose of this section.”

16 It was submitted that there was no amount payable because the lease in contravention of s 22(1)(b) did not specify how the amount of outgoings would be determined and how they would be apportioned to the lessee. The plaintiff suggested there was, by the terms of the front page, a pre-determined fixed amount and that this was compliance with the section.

17 All I can say is, that there is an obvious tension between the front page and cll 25A and 25B which are expressed to be mutually exclusive. One of them has not, as is obviously contemplated by the lease, been crossed out.

18 However, assuming there was a breach, it is clear that all the section does is to provide that the lessee is not liable to make a payment. It does not deal with the situation where payment has been made.

19 Presumably there could be a claim for money paid under a mistake of law. See David Securities Pty Limited v Commonwealth Bank 175 CLR 353). This, however, may depend on whether there has been a total failure of consideration. I have not had full argument on this subject so I am reluctant to decide the case on this basis.

20 It was also claimed that there was a breach of cll 28 and 29. These sections are as follows:

“28. Lessor to provide statement and report on outgoings.

A retail shop lease is taken to include provision to the following effect:

(a) The lessor must give the lessee a written statement (an outgoings statement ) that details all expenditure by the lessor in each accounting period of the lessor during the term of the lease on account of outgoings to which the lessee is required to contribute.

(b) If the shop is in a retail shopping centre, the outgoings statement must include a statement of the current gross lettable area of the shopping centre and details of any material change in that gross lettable area during the period to which the outgoings statement relates.

(c) The outgoings statement is to be prepared in accordance with relevant principles and disclosure requirements of applicable accounting standards made by the Australian Accounting Standards Board, as in force from time to time.

(d) The outgoings statement is to be given to the lessee within 3 months after the end of the accounting period to which it relates.

(e) The outgoings statement is to be accompanied by a report (an auditor’s report ) on the statement prepared by a registered company auditor (within the meaning of the Corporations Act 2001 of the Commonwealth).

(f) The auditor’s report is to include a statement by the auditor as to whether or not the outgoings statement correctly states the expenditure by the lessor during the accounting period concerned in respect of outgoings to which the lessee is required to contribute, and as to whether or not the total amount of estimated outgoings for that period (as shown in the estimate of outgoings given to the lessee) exceeded the total actual expenditure by the lessor in respect of those outgoings during that period.

(g) The outgoings statement may be a composite statement (that is, it may relate to more than one lessee) so long as each lessee to which it relates is able to ascertain from the statement the information required by paragraph (a) that is relevant to that lessee.

(h) The outgoings statement need not be accompanied by an auditor’s report if the statement does not relate to any outgoings other than land tax, water, sewerage and drainage rates and charges, local council rates and charges and insurance, and it is accompanied by copies of assessments, invoices, receipts or other proof of payment in respect of all expenditure by the lessor as referred to in paragraph (a).

29 Adjustment of contributions to outgoings based on actual expenditure properly and reasonably incurred.
(a) There is to be an adjustment between the lessor and the lessee for each accounting period of the lessor to take account of any under-payment or over-payment by the lessee in respect of outgoings during the period. The adjustment is to take place within 1 month after the lessor gives the lessee the outgoings statement referred to in section 28 for the period concerned and must in any event take place within 4 months after the end of that period.
(b) The adjustment is to be calculated on the basis of the difference between the total amount of outgoings in respect of which the lessee contributed (that is, the estimated total expenditure by the lessor on outgoings during the period concerned) and the total amount actually expended by the lessor in respect of those outgoings during that period, but taking into account only expenditure properly and reasonably incurred by the lessor in payment of those outgoings.
(c) Contribution by the lessee towards, and expenditure by the lessor in respect of, repairs and maintenance is not to be taken into account for the purposes of the adjustment to the extent that the contribution is, and the expenditure is in respect of, contributions required to be paid into a sinking fund as referred to in section 25.”

21 It is clear that no outgoings statement was issued and it was submitted in those circumstances the debt was created because the adjustment process in cl 29(b) was in some way frustrated.

22 I do not see how the debt arises. Sections 28 and 29 work by making their provisions a term of the lease. All that would follow is a breach of the lease. Presumably if the lessor refused to give a statement and refused to give an adjustment there may be breaches of the terms of the lease which are comprised in ss 28 and 29. All this would lead to is a claim for damages for breach of contract. Such a claim cannot be relied upon as the basis for the statutory demand. (See Rothwells v Nommack (No 100) 6 ACLC 1199 at 1200 and First Line Distribution v Paul Whiley 13 ACLC 1216 at 1218 and also the unreported decision of Griffiths Producers Co-Operative Limited v Calabria, McLelland CJ in Eq 28 November 1996. See also CGI Information Systems and Management Consultants Pty Limited v APRA Consulting Pty Limited (2003) 47 ACSR 100.

23 On that basis, it seems to me that there is not an appropriate debt to substantiate the demand in respect of any breach of ss 28 and 29.

24 I turn to the question of whether there is in any event a genuine dispute about the debt. I have had the benefit of having a number of submissions in respect of the principles to be applied and I think the most useful summation of what is a genuine dispute is that by McLelland CJ in Eq in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At p 671 his Honour made the following comments in 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 Mibo 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 most 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.’”

25 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.

26 The argument I have already referred to about s 22 is one which is clearly an active dispute. The construction of the lease dispute will arise in the Local Court proceedings. The defendant has not cross-claimed in those proceedings, which is somewhat surprising. The existence of those proceedings confirms what I already consider on the basis of the arguments put to me, namely, that the dispute is a genuine one.

27 In those circumstances, I make orders 1 and 2 in the originating process.

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