Raine & Horne Commercial P/L v Capital Concepts & Development P/L

[1993] FCA 922

RAINE AND HORNE COMMERCIAL PTY LIMITED v. CAPITAL CONCEPTS AND DEVELOPMENT PTY
LIMITED
No. G3157 of 1993
FED No. 922/93
Number of pages - 8
Corporations Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
EINFELD J

CATCHWORDS

Corporations Law - winding up application on the grounds of inability to pay debts - whether bona fide dispute as to the debt on substantial grounds - whether agreement void for uncertainty - whether requirements of Auctioneers and Agents Act (NSW) 1941 satisfied - alleged abuse of process

Corporations Law (Cth) ss 460(1), 466(2)

Corporate Law Reform Act 1992 (Cth)

Federal Court Rules O 71 r 47, Schedule 4 r 37 (5)

Calsil Ltd (1982) 1 ACLC 329

Caruso Australia Pty Ltd (1983) 1 ACLC 1,202

Nickel Rim Mines Ltd v Horizon Pacific Ltd (1991) 9 ACLC 709.

K.L. Tractors Ltd (1954) VLR 505

Welsh Brick Industries Ltd (1946) 2 All ER 197

HEARING

SYDNEY, 10 and 30 September 1993

#DATE 14:12:1993

Counsel and solicitor for Mr S.R. Donaldson
the applicants instructed by D.W. Alexander and Co.

Counsel and solicitor for Mr M.M. Macrossan
the respondent instructed by Phillips Fox

ORDER

1. Capital Concepts and Development Pty Limited be wound up.

2. Applicant's costs including reserved costs be taxed and reimbursed in accordance with section 466(2) of the Corporations Law.

3. In the event that the applicant wishes to substitute its own for the Registrar's nomination of liquidator, arrangements should be made with my associate for a convenient date for the presentation of its argument.

The application should be supported by appropriate affidavit evidence filed and served not less than 5 days prior to the proposed hearing.
Note:Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.

JUDGE1

EINFELD J By an application filed 11 June 1993, Raine and Horne Commercial Pty Limited (the applicant) seeks orders that Capital Concepts and Development Pty Limited (the respondent) be wound up by the Court under the provisions of section 460 of the Corporations Law, and that a liquidator be appointed. The respondent opposes the application on the grounds that there is a bona fide dispute as to the alleged debt.

1. The applicant carries on business as a real estate agent. The respondent was involved in the development of a commercial property known as the Bijou at Balmain (the property) which it was offering for lease and engaged the applicant in letting the space in the property.

2. On 31 January 1991 the parties entered into a written Leasing Agency Agreement (the agreement) whereby the respondent agreed to pay commissions to the applicant in the event that the applicant found tenants for any of the areas of the property. These commissions were to be calculated as a percentage of the rental payments and outgoings under the particular lease as specified in an attached schedule of leasing fees and charges. A dispute exists as to whether any commissions became payable, and if so when they became payable.

3. Under section 42A of the Auctioneers and Agents Act 1941 (NSW) (the Act), a real estate agent is not entitled to remuneration for services performed unless a statement of claim is sent setting out the commission claimed. On 19 May 1992 the applicant sent the respondent a claim for commission in the amount of $10,916.40 in respect of an area let to the ANZ Bank Limited (ANZ). These monies remain unpaid.

4. Under section 460(1) of the Corporations Law, a Court may order the winding up of a company that is unable to pay its debts. Section 460(2) provides:
   

For the purposes of an application that is made in relation to a company on the ground provided for by subsection (1), the company shall be deemed to be unable to pay its debts if:

(a) a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding $1,000 then due has served on the company a demand, signed by or on behalf of the creditor, requiring the company to pay the sum so due and the company has, for 3 weeks after the service of the demand, failed to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; .....

1. As the applicant's demand of 19 May 1992 complies with section 460(2)(a) and the respondent failed to comply with it, the respondent is deemed to be insolvent and becomes liable to be wound up unless it can demonstrate that the sum demanded in the notice is disputed bona fide and on substantial grounds. It is not sufficient for a respondent to an application of this type merely to assert that there is a dispute as to the alleged indebtedness; there must be a bona fide dispute based on substantial grounds: see inter alia Re Welsh Brick Industries Ltd (1946) 2 All ER 197; Re K.L. Tractors Ltd (1954) VLR 505; Re Calsil Ltd (1982) 1 ACLC 329; Re Caruso Australia Pty Ltd (1983) 1 ACLC 1,202; Nickel Rim Mines Ltd v Horizon Pacific Ltd (1991) 9 ACLC 709. What constitutes a dispute on substantial grounds is a question of fact or law to be decided in each case but obviously the dispute has to be more than outwardly genuine; there must be substantial reasons for doubting its existence.

2. The respondent submitted that there is a bona fide dispute as to the ANZ commission on a number of grounds:
   

a) Void for uncertainty or not yet payable
8. The agreement provided that a commission was payable:

When a prospective Lessee accepted by the Principal following introduction to him by the Agent executes either any Heads of Agreement for Lease or any Lease irrespective of by whom such document may have been prepared or when such prospective Lessee enters into possession of the property, or pays rent, whichever first occurs the Agent shall be forthwith entitled to be paid the leasing fee hereunder stipulated

LEASING FEE: AS PER THE ATTACHED SCALE OF LEASING FEES AND CHARGES.

The evidence is not clear as to when the respondent received the agreement and the attached scale of leasing fees. However, the scale applicable on 31 January 1991 provided: A. (i) The leasing fee is to be calculated on the average annual gross rental reserved under the lease at the rate of 11% for leases up to and including 3 years, plus half of one percent for each lease year or part thereof in excess of 3 years.

(ii) 'Rental' is defined as the rent reserved under the lease plus any other payments the tenant is made responsible for under the letting agreement; being the lease or associated licences. Included are outgoing contributions, cleaning, partition rentals, car parking fees, naming and/or signage rights.

(iii) 'Average Annual Gross Rental' is defined as the average of the amount payable during each year of the lease and any fixed rent escalations negotiated for the term certain will be included.

(iv) Any rent free or fitting-out period negotiated by the tenant will not be taken into account when calculating the average annual gross rental.

B. In regard to a sub-lease or assignment of lease, the leasing fee applicable under A.(i) above will apply to any unexpired portion of the lease. Should the unexpired term be less than 1 year and an option for any further lease term exists, then the fee applicable shall be 11% of the initial annual rental.

1. The respondent submitted that the calculation of any commission based on the average annual gross rental plus any other payments for which the tenant was made responsible could not be made until the lease had expired. As there was no provision in the agreement for any estimation or method of determining the fees payable prior to the actual payment of the rent and outgoings, the agreement was void for uncertainty. Alternatively, the respondent submitted that as the agency fee could not be calculated until the expiry of the lease, it could not be said that it was an intention of the parties that such a fee be paid prior to this time, and consequently the respondent could not be indebted to the applicant under the agreement until the expiry of the lease.

2. In my opinion, the agreement expressly provided that a commission was payable upon execution of the lease, entry into possession by the lessee or the payment of rent, whichever is earlier in time. On no interpretation of this agreement could it be said that the respondent did not become indebted to the applicant until the expiry of the lease.

3. In the present case, the applicant provided the rent at the commencement of the lease and the outgoings assessed by the respondent to the ANZ for the purpose of negotiations on the leasing of the property and used them to calculate the average annual gross rental and the commission payable. The respondent submitted that as:
   

1. the rental reserved under the lease is subject to bi-annual market review and no fixed minimum increase in rent is reserved in the lease,

2. the outgoing contributions are not fixed by the lease but are as a result of the applicant's right to estimate outgoings, and

3. no right to estimate rent and outgoings exists, the ANZ commission cannot satisfy the terms of the agreement.

1. In my view the clear agreement that a commission is payable upon commencement of the lease necessitated some kind of approximation for averaging rent and outgoings. The assumption made by the applicant that average rent was equal to that paid upon commencement of the lease was reasonable as clause 2 of Schedule 3 of the lease provided that rent could only be increased and not reduced at the review dates.

2. A more difficult question arises in relation to the estimate of outgoings relied upon by the applicant. It is true, as the respondent asserted, that the outgoing contributions used to calculate average annual gross rental were not fixed by the lease but were taken by the applicant from a letter dated 4 February 1992 received from the respondent in which the respondent set out the outgoings it estimated for discussions with the ANZ. It was submitted by the respondent that the applicant had no right to use these figures to estimate outgoings for the purpose of determining their commission.

3. While there is some abstract Aristotelian merit in this proposition, it is also important to keep in mind that the respondent knew upon entering into the agreement that outgoings were going to form part of the figure used to calculate the commission at the commencement of the lease, and that outgoings were by necessity going to have to be estimated. It is also relevant that the evidence does not disclose any dispute in relation to this claim until some 8 months after the applicant issued its invoice for the commission.

4. The circumstances in the present case do not strike me as involving a bona fide dispute on substantial grounds. The agreement was the respondent's own agreement in the sense that whoever was its author the respondent accepted and executed it. The agreement clearly provided that a commission would become payable upon ANZ entering into the lease and the Scale of Leasing Fees and Charges provided a certain means for calculating the commission payable. There is no reasonable basis for arguing that the agreement is void for uncertainty.

b)Service of the agreement
16. Under section 42AA(1)(f) of the Act, a real estate agent is not entitled to any remuneration for services performed by him unless a copy of the agreement pursuant to which those services were performed is served on the other party within 48 hours of the agreement being signed by the other party. Although the respondent does not dispute that it was given a copy of the agreement, there is some argument as to when the agreement was in fact received by the respondent, and as to whether the Scale of Leasing Fees was attached to it.

1. The evidence establishes that the agreement was given by Mr Pearce on behalf of the applicant to Mr Bloch-Jorgensen a director of the respondent at a meeting on Thursday 31 January 1991. Mr Pearce said that, prior to this meeting, he submitted the agreement in triplicate to a director of the applicant, Mr Cullen, for execution prior to the meeting in accordance with his usual practice and Raine and Horne policy. Mr Pearce said that at the meeting Mr Bloch-Jorgensen signed the agreement after lengthy perusal, and took with him the "Principal's Copy" with the Scale of Leasing Fees and Charges attached while Mr Pearce retained the "Agent's Copy" and the "File Copy".

2. Mr Bloch-Jorgensen had a different recollection of the events. He asserted that the agreement he signed on 31 January had not been signed on behalf of the respondent, and that after his signature Mr Pearce took the agreement away with him for signature. Mr Bloch-Jorgensen stated that he could not recall receiving the agreement at the meeting, and that he believed it was not sent to him until the following week. This belief is based partly on recollection, partly on the fact that his copy was not hole-punched and placed in his file as he says it would have been if he had brought it back from the meeting, and partly on the fact that the agreement had been folded as if placed in an envelope.

3. This dispute was the subject of oral evidence on 30 September 1993 when Mr Bloch-Jorgensen and Mr Pearce were both cross examined on their affidavits. Although both witnesses were apparently credible, for the main part I prefer the evidence of Mr Pearce. Mr Bloch-Jorgensen certainly gave evidence of a clear recollection of not being handed a copy of the agreement at the meeting, but he had no clear recollection of when the agreement was actually received. Moreover, Mr Bloch- Jorgensen stated in cross examination that he had not directed his mind to this question until his affidavit of 14 September 1993 was being prepared, presumably when he was informed by his solicitor of the requirements of the Act. In contrast, Mr Pearce for the applicant was at all times well aware of his company's obligations under the Act. He stated that it was his firm's policy that this statutory requirement be strictly complied with and that he had a clear recollection of complying with the policy and the requirement by handing the document to Mr Bloch-Jorgensen at the meeting. I accept and believe his evidence to this effect.

4. The respondent faces the further difficulty that the lack of punched holes in the document and its folded state are equally consistent with the agreement having been delivered to the respondent's office the day after the meeting within the time requirements of the legislation. This possibility was admitted by Mr Bloch-Jorgensen to link with the fact that he had no clear recollection of when he received the agreement.

5. There is no written record of when the agreement was received, and I therefore have nothing but the recollections of the witnesses upon which to rely. In the circumstances, I conclude that Mr Pearce's account is more likely the truth and therefore that this matter does not raise a substantial ground for disputing the debt.

c) Statement of claim not in proper form
22. Section 42A(1) of the Act provides that an applicant is not entitled to take any action to recover any remuneration of the type in question until 28 days after it has served "a statement of claim in writing setting out the amount claimed and containing details of the services performed".

1. On 19 May 1992 Mr McCartney, the financial accountant for the applicant, sent the respondent an invoice for the amount of $10,916.40 (the larger amount). This invoice was a statement of claim for the purposes of section 42A but the amount claimed in it was incorrect. It was apparently based on the new Scale of Leasing Fees and Charges which came into effect on 1 February 1991. The correct figure, and the figure upon which these proceedings is based, is $10,752.77 (the lesser sum) calculated with reference to the Scale of Leasing Fees in force on 31 January 1991 when the agreement was signed. The respondent submitted that as no amended statement of claim was ever served, the applicant was precluded under section 42A from commencing any action to recover the debt now alleged.

2. The purpose of section 42A is to provide a client or principal with an itemised bill of the commission claimed, so that an application for review of whether the commission is reasonable, can be made to the Real Estate Services Council (the Council) within 28 days after service of the statement of the claim under section 42A(4). The respondent did not seek a review of the statement of claim sent on 19 May 1992. Thus the substance of the respondent's argument is that the Act should be interpreted so as to preclude any step being taken to recover a commission of the lesser sum because it was not given an opportunity to seek a review of that claim, but was instead given the opportunity to seek a review of a claim for the larger amount in respect of the same services, which it elected not to do.

3. This argument is manifestly untenable. Statutes should not be construed so as to give rise to absurd consequences. In serving a statement of claim for the larger amount, the applicant gave the respondent an opportunity to query the commission before the Council. If the respondent had done so, the correct calculation would have been opened up for consideration. Its failure to take this opportunity, not the applicant's error, lies at the base of this supposed argument. For its part the applicant complied with the requirements of section 42A despite the fact that the amount now sought is less than its original claim. Although there may be cases where an applicant will be precluded from recovering a commission if it is incorrectly set out in the statement of claim, this case is not one of them. No injustice has been done to the respondent. There is no bona fide dispute about this matter which is based on substantial grounds.

d) Other relevant factors
26. The respondent also relied on a number of other factors which it said were relevant to this dispute. In particular, the respondent submitted that following the dismissal of separate but similar proceedings based upon a different section 460 demand claiming a different sum of money in the Supreme Court of New South Wales, the commencement of these proceedings was an abuse of process.

1. This submission was raised before Justice Hill on 28 August 1993 during an application by the respondent and as a ground for a stay of these proceedings. The respondent claimed then, as it does now, that the abuse of process was demonstrated by the fact that notwithstanding the dismissal of the Supreme Court proceedings, its costs had not yet been paid. Justice Hill refused the stay and held that as the proceedings were based upon a different section 460 demand they were not an abuse of process. I respectfully agree with his Honour's conclusion and fully adopt his reasons for that judgment. This ground of attack on the applicant's application fails.

2. Accordingly I find that there is no bona fide dispute on substantial grounds and therefore order that Capital Concepts and Development Pty Limited be wound up under the provisions of the Corporations Law. The applicant's costs, including reserved costs, are to be taxed and reimbursed in accordance with section 466(2) of the Corporations Law.

3. On 10 June 1993 the applicant applied for the Registrar's nomination of an official liquidator, and on that day Registrar Ooi nominated Peter Bernard Allen to act as Liquidator in the event that the winding up application was successful. On 10 August 1993 the applicant filed another document nominating John Vouris to be appointed liquidator by the Court in the event that the winding up order was made.

4. The application for winding up in these proceedings was filed prior to the amendments to Chapter 5 which came into effect on 23 June 1993 as a result of the Corporate Law Reform Act 1992 (Cth). As a result, the special transitional provisions set out in Schedule 4 to the Federal Court Rules apply to this application: O 71 r 47. Under rule 37 (5) of Schedule 4, the Court will appoint the liquidator nominated in accordance with Form 88, in this case Peter Bernard Allen: unless it is satisfied that some other official liquidator should be appointed.

1. In the event that the applicant wishes to continue with its application to substitute its own for the Registrar's nomination of liquidator, arrangements should be made with my associate for a convenient date for the presentation of its argument. The application should be supported by appropriate affidavit evidence filed and served not less than 5 days prior to the proposed hearing.