Re Morbell Investments P/L

[2001] QSC 248

THE SUPREME COURT

[2001] QSC 248

OF QUEENSLAND

BRISBANE  No. S  7588 of 2000

IN THE MATTER OF CORPORATIONS LAW

AND

IN THE MATTER OF MORBELL INVESTMENTS PTY LTD

(ACN 085 438 188)

(Applicant)

AND              

IN THE MATTER OF AN APPLICATION TO SET ASIDE STATUTORY DEMAND FOR PAYMENT OF DEBT SERVED ON THE APPLICANT BY HOTEL MOTEL AND RESORT BROKERS PTY LTD (ACN O72 170 784)

(Respondent)

REASONS FOR JUDGMENT

B.W. Ambrose J.

Delivered the sixteenth  day of March  2001

CATCHWORDS: CORPORATIONS LAW – SETTING ASIDE STATUTORY DEMAND – Leased premises damaged by fire – whether a genuine dispute as to terms of any agreed abatement between the parties to lease – whether performance of tenants obligations suspended

Counsel:S Farrell for the Applicant

D Andrews for the Respondent

Solicitors:Windsor Craig solicitors for the Applicant

Murphy Crompton & Morris Lawyers for the Respondent

Hearing Dates:  31 January 2001

[1]      This is an application by the applicant (“the tenant”) to set aside a statutory demand for payment of monies allegedly owing to the respondent (“the landlord”) pursuant to a lease of a nightclub and entertainment premises located at 237 Flinders Street Townsville.

[2]      The tenant commenced to conduct its business in the leased premises on 10 December 1998.

[3]      On 16 January 2000, the leased premises were substantially damaged by fire.  The premises comprise two floors.  The entertainment area and bar facilities were largely on the lower street level floor.  The upper floor was used for kitchen purposes and pool tables etc.

[4]      The upper floor was very substantially damaged, the kitchen facilities on the evidence being totally destroyed.  The lower floor suffered significant water damage as a result of efforts made to control the fire on the upper floor.

[5]      The tenant attempted to conduct its business after a week or so had been spent trying to clean up the lower floor of the premises.  However, because of fire damage and the lack of facilities formerly available on the upper floor, the business could only be conducted at a very significant loss and eventually the tenants ceased to occupy the premises in about June 2000.

[6]      Up to the time of the fire the tenant had complied with the terms of the lease relating to payment of rent and other outgoings.

[7]      Because the premises were substantially damaged by fire on 16 January 2000, cl 16.1(1)(a)(i) had operation.  That clause provides –

“A proportionate part of the Annual Rent and any other moneys payable under the terms of this lease (save any Additional Rent) according to the nature and extent of the damage sustained, abates and all or any remedies for recovery of that proportionate part of the Annual Rent and other moneys falling due after the damage are suspended until the premises have been restored or made fit for the occupation and use of the Tenant or accessible to the tenant as the case may be.”

[8]      Under cl 16.1(4) of the lease it is provided –

“Any dispute arising under para. (1) or (2) of this clause will be determined by a member of the Australian Institute of Valuers & Land Economists (Qld Division) or its successor appointed by the President for the time being of that Institute on the application of the Landlord or the Tenant.  The person so appointed will in making his determination act as an expert and not as an arbitrator and his determination will be final and binding on both parties…”

[9]      Clause 16.2 deals with the situation where the premises are so damaged that they are rendered wholly unfit for occupation and use of the tenant.  There was no argument as to whether the premises ceased to be wholly unfit for use by the tenant. In fact the tenant seems to have occupied the premises for about 5 months before vacating them upon the alleged failure of the landlord to restore them to their pre-fire condition.

[10]      Subsequent to the fire and apparently when little or allegedly insufficient remedial work had been effected to the damaged premises, negotiations took place between the landlord and the directors of the tenant for the purchase by those directors of the damaged premises from the landlord.  There was a contract between those parties executed on 25 March 2000.  The contract was subject to finance.

[11]      It is relevant to take these negotiations and dealings between landlord and tenant and the directors of the tenant into account when considering the terms of some of the correspondence that passed between landlord and tenant.

[12]      It seems clear in my view that there was no concluded agreement reached between landlord and tenant as to the abatement of rent or the obligation to pay rates and other outgoings pursuant to cl 16.1(1)(a)(i).  It is abundantly clear that neither the landlord nor the tenant sought a determination of the dispute, which obviously existed between them under para (1) of cl 16 pursuant to cl 16.1(4) of the lease.

[13]      For the landlord it is contended that a letter written on behalf of the tenant on 28 March 2000 is evidence that indeed an agreement between them had been reached  “in settlement of the rent abatement question”.

[14]      That letter reads inter alia as follows –

“Further to our letter of 23 March we understand that agreement has been reached in settlement of the rent abatement question as follows-

·     Our client pay rental at the rate of 46.19% of actual rent effective 16 January 2000;

·     payment to be made as follows - $4,000 on 23 March 2000 (already paid) $4,000 on 27 March (paid) $4,000 on 3 April and $4,000.00 on 10 April and thereafter rental be paid on monthly rests at the discounted amount until the property be re-instated or settlement of the sale to Morris and Bell complete;

·     Until our searches are received showing rates position, rates for the period of July to December 1999 and January to current date be held by client, pending settlement of the Morris & Bell purchase to then be paid at settlement.  As we understand it, the January to July 1999 rates period was not paid by your client, after having been paid by our client to your client – it is proposed to offset the amount for that period against rental due up to settlement, as well.

Please confirm, at which point the without prejudice cover of the negotiations to date will lift and the agreement as set out above will be effective between our respective clients and enforceable as between them forthwith.  If there is to be further negotiations, our client prefers that it occur via our respective offices, rather than between the parties, direct”.

[15]      I do not propose to analyse in detail the terms of the correspondence that passed between landlord and tenant relating to the alleged “agreed abatement”.  It is clear in my view, that it is strongly arguable at least, that there was no firm or concluded agreement ever reached as to abatement – even on the assumption that it was to operate only pending completion of the contract of sale negotiated between the parties.

[16]      In my view, the failure of both landlord and tenant, to have the question of abatement determined pursuant to cl 16.1(4) of the lease, in the absence of any concluded agreement, has had the legal effect of simply suspending the tenant’s obligation to pay rent, rates and other outgoings.  Indeed it is the contention of the tenant that it has been denied entry to the premises which seem to have been vacant ever since June 2000.  These are matters however, in dispute and it is unnecessary on the material for me to examine that question.

[17]      It is conceded on behalf of the respondent that its statutory demand dated 9 August 2000 claims more than it can demonstrate to be owing by the applicant on the assumption that its obligations to pay abated rent and other outgoings were not in fact suspended because of a concluded agreement reached between the parties.  In light of the conclusion to which I have come however, it is unnecessary for me to deal with this question.

[18]      In my view, the applicant has established that there is a genuine dispute between it and the respondent about the existence of the debt, upon which the respondent relies to support its statutory demand.  I am persuaded that the applicant does genuinely dispute its obligation to pay anything to the respondent under the lease.  It is unnecessary for me to speculate as to the outcome of any action that may be taken by either party to the dispute to enforce whatever its legal rights may be.

[19]      I set aside the statutory demand of the respondent dated 9 August 2000.

[20]      This is a matter which it would be in the interests of both parties to have determined promptly.

[21]      The leased premises have apparently been unoccupied for nearly nine months and the material suggests that a significant if not substantial amount of money may need to be spent before they can be brought back into a condition where they may again properly be used for the purpose of a tavern and nightclub.  These are not matters which were canvassed on the hearing.  There have apparently been discussions between the parties relating to their rights over the last six months or so.

[22]      There is no indication that either party has taken or contemplates taking proceedings to enforce whatever rights it may have under the lease.

[23]      In the circumstances I will simply reserve the question of costs.  In my view it is appropriate that the costs of this application should be reserved for consideration of any court that determines the dispute between the parties concerning the effect of cl 16.1(1)(a)(i) upon the tenants obligation under the lease to pay rent and other outgoings.  On the other hand, if neither party institutes proceedings within the next month, I take the view that the applicant ought have its costs of successfully overcoming the respondent’s opposition to its application.

[24]      Should no action be instituted by either party within the next month, I give the applicant liberty to apply for an order that the respondent pay its costs of this application to be assessed.