- Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd

Supreme Court of NSW|2024-10-25|Before: Black J

Solicitors: M Metledge (Plaintiff) Alford Lee & Associates (Defendant) File Number(s): 2024/232368

Judgment - ex tempore (Revised 28 October 2024)

By Originating Process dated 21 June 2024 the Plaintiff, TJM Holdings Group Pty Ltd ("TJM"), applied to set aside a creditor's statutory demand dated 4 June 2024 ("Demand") issued by the Defendant, Woori International Pty Ltd ("Woori"). The Demand was dated 27 May 2024 and was for the amount of $78,300.42 described as the total of the debt described in the schedule. The schedule in turn referred to a first judgment debt registered with the Local Court of New South Wales by order dated 24 May 2024 in the amount of $54,847.36, comprising a principal amount of $49,298.05 and interest of $4,331.31; and a second judgment debt registered by order of the same date in the amount of $24,453.06, comprising a principal amount, interest and filing fees totalling $24,453.06. The total of the two judgment amounts claimed was $78,300.42 being the amount claimed in the Demand.

Affidavit evidence

TJM relied on voluminous affidavit evidence, in chief and in reply, in support of the application, although a significant part of that evidence was directed to criticisms of the underlying proceedings in the New South Wales Civil and Administrative Tribunal ("NCAT"), which are not open to a collateral challenge in an application to set aside the Demand, where NCAT's decision has been reflected in orders of the Local Court.
By an affidavit dated 21 June 2024, Mr Tony Metledge, who is the sole director of TJM, identified several suggested "defects" in the Demand, namely that the Demand did not indicate to whom the debt was to be paid; it did not indicate an address at which payment of the debt could be made; it did not indicate how the interest component was calculated, although I pause to note that the interest component was in fact part of the order of the Local Court reflecting giving effect to NCAT's decision; it was suggested that the address of Woori shown on the order of the Local Court was not its address; and the judgment of the Local Court (or, possibly, NCAT's decision) was "invalid and unenforceable and therefore in dispute", a proposition which is not open in respect of a judgment of a Court.
Mr Metledge also there identified a suggested genuine offsetting claim of at least $420,532.92, which he set out by reference to particulars that he said were copied from Points of Claim filed in the NCAT proceedings, comprising legal and expert fees and disbursements of $140,000 plus GST, cleaning and associated costs of $67,188, total rent arrears owing of $189,667.22, which appeared to have been calculated at least to 30 April 2022, less an amount received under a bank guarantee, plus outgoings also calculated to 30 April 2022. Other amounts are claimed, referable to the suggested breach of Woori's obligations. Mr Metledge's affidavit here refers to particulars of the loss and damage and does not go further to seek to establish the underlying facts or even an arguable basis for the underlying facts, which would support those particulars, although I have been taken to documents which I will find below establish an arguable case as to a narrower offsetting claim for a shorter period than that identified by TJM. I return to that matter below.
Mr Metledge also says, by way of assertion, that TJM is solvent because it owns real estate and has access to immediate funds to pay debts as they fall due, although I note that it has not paid the amounts that the Local Court has ordered to be paid to Woori. Solvency may be relevant in an application to set aside a creditor's statutory demand, but only so far as it is relevant to the exercise of any discretion that the Court may have as to whether to set aside that demand. Mr Metledge, also by way of assertion, makes a number of allegations of impropriety in respect of the Demand. No impropriety is shown where the Demand would, unless set aside or varied, simply create a presumption of insolvency if TJM did not, within the statutory period, pay the amount that has been awarded by NCAT in Woori's favour, as reflected in the orders made by the Local Court.
By a second affidavit dated 15 August 2024, Mr Metledge refers to correspondence between the parties at about the time that the lease was terminated and, it appears, Woori remained in possession of the premises for some future period. I will refer to aspects of that that correspondence below. Mr Metledge again makes criticisms of the process adopted by NCAT, in determining the claims before it, but this Court does not sit as an appeals tribunal from decisions of NCAT in dealing with an application to set aside a creditor's statutory demand.
It is, however, important to refer to some of the documents which are exhibited to that affidavit (Ex P2), which underlie the arguable offsetting claim that it appears to me is available to TJM, in a narrower version than was asserted by it. By letter dated 27 September 2021, the solicitor then acting for Woori denied that Woori was in occupation of the premises, and reiterated that Woori had accepted a notice of termination dated 18 June 2021 and that the lease had terminated as of 28 June 2021. That solicitor pointed to a potential rental waiver and rental deferral arising under the lease during the Covid-19 period and made an offer of settlement by payment of a specified amount, prior to the subsequent determination of issues in NCAT. By a letter dated 27 September 2021, Mrs Metledge, who then and now acts for TJM, denied that the only amount outstanding was $54,938.61 and referred to a claim for a larger amount. Mrs Metledge there asserted that Woori was then in possession of the premises as a tenant at will under licence and rent was payable until all keys to the premises were returned to the agent. A schedule of moneys claimed by TJM as at 22 September 2021 referred to a claim for $90,526, including $54,938.61 for arrears in rent and outgoings at 21 June 2021 and subsequent claims for rent in July and August and additional amounts. By a further letter dated 27 September 2021, Mrs Metledge contended that Woori still had possession for the premises, whether or not it was carrying on a business from the premises, until the property was vacated and the keys were handed back.
In his third affidavit from Mr Metledge dated 11 September 2024, which was at least purportedly in reply, Mr Metledge advanced further criticisms of the conduct of the proceedings in NCAT. He also led some further evidence as to the position in respect of continued occupancy of the premises by Woori after the termination of the lease, and there contended that Woori and a subtenant had the only set of keys to the premises, and the subtenant continued to occupy and run its business from the premises until a final lockout of the subtenant on 2 October 2021. He also contended that the subtenant and Woori's possessions remained in the premises until that date and only they had sole possession and access at that time. I will return to some evidence that supports that proposition, and to its significance for this application, below.
TJM also tendered a draft Statement of Unliquidated Claim, which is both unsigned and unverified. I admitted that document over objection, but pointed to the fact that it ultimately was not capable of establishing anything as to a genuine offsetting claim, by reason of the principles considered, at some length, by Rees J in Re Fujian Xingxing Restaurant Pty Ltd [2020] NSWSC 1131 at [78]ff. That document does not advance TJM's claim to set aside the Demand. I recognise that Mrs Metledge indicated that the document was relied on, not to establish the truth of the allegations, but to establish that TJM had been devoting efforts over the last several years to prepare a draft Statement of Unliquidated Claim. No doubt the document establishes that matter, but that does not advance the position so far as establishing a genuinely arguable offsetting claim is concerned, which turns upon the facts by which that claim would be established, not the efforts made to draft it. More significantly, TJM also tenders a notice of 2 October 2021 related to its re-entry into the premises which had previously been occupied by Woori, consistent with the position to which reference had been made in Mr Metledge's affidavit in reply, namely that Woori were a subtenant and continued to occupy those premises until the date of re-entry on 2 October 2021.
Woori, in turn, relies on the affidavit dated 21 August 2024 of Mr Yi, which refers to the termination of the lease and entry into a tenancy at will, to which I will refer below, and contends that Woori ceased occupying the premises in accordance with the terms of the tenancy at will on 28 June 2021, when it failed to pay rent that was due under the tenancy at will. Ms Yoo, who appears for Woori, also relies on that matter in her submissions. That, as I will note below, is a potential defence to an offsetting claim, and not a matter that is capable of depriving an offsetting claim that is otherwise arguable of that character. Mr Yi also refers to the conduct of the proceedings in NCAT, which are of lesser significance for present purposes, where the result of those proceedings is now reflected in the orders of the Local Court to which I have referred above. He also addresses responses to aspects of the matters raised in respect of TJM's offsetting claim. Importantly, he points out that one aspect of that claim, in respect of an arrears of rental payments as at 21 June 2021, fails to take account of the fact that NCAT had already allowed for those arrears in determining the amount that it ordered TJM to pay to Woori, and that matter is apparent from NCAT's decision to which I was taken in submissions.
Mr Yi's affidavit also annexes a copy of the relevant lease, and Mrs Metledge relied, in submissions, on cl 21(4) of that lease which provides that, if the lessee, relevantly Woori, failed to comply with specified obligations, then Woori was liable to pay to TJM an occupation fee calculated in a particular manner until the property was restored in accordance with the clause, calculated at a daily rate. It is not necessary to determine any legal question as to whether that clause could have continued operation, after the lease was terminated and Woori was occupying the premises as a tenant at will, because TJM here leads no evidence which establishes that any matters needed to be addressed by way of removal, reinstatement or repairs, or the time which was taken to address them, or the point at which the property was restored in accordance with the clause. Mrs Metledge indicates, in submissions, that she did not understand that TJM was required to prove that matter in an application of this kind. TJM is not required to prove that matter to the standard which would be required at a final hearing on any question of recovery under that clause on its merits. TJM must, however, lead evidence that is sufficient to indicate that any offsetting claim is arguable, and rises beyond the level of mere assertion and bluster, and that cannot be done where no evidence is led to establish the factual basis of a claim under that clause.
Mr Yi's affidavit also annexed correspondence relating to the bases on which Woori had been allowed into the property as a tenant at will, from 18 June 2021, which contemplated that it could occupy the premises provided that it had met all its obligations to pay future rent and outgoings as provided in the lease, which had been terminated, but also provided that time was of the essence for payment of rent, and that Woori would be locked out if it was late by even one day in payment of rent. That is a matter on which Ms Yoo relies, as I have noted above, but I have pointed above to the fact that it amounts to a potential defence to any offsetting claim by TJM and does not exclude an arguable basis for that claim. Mr Yi's affidavit also addresses NCAT's decision which indicates (at [133]) that NCAT had already deducted the amount of $54,938.61, which the parties recognised was outstanding by Woori, in determining an amount to be refunded by TJM to Woori of $49,298.05, on which reliance is in turn placed so far as it is incorporated in the Local Court Judgment to which I referred above.

Whether there were defects in the Demand

First, TJM contends that there were several defects in the Demand. Section 459J(1)(a) of the Act relevantly provides that the Court may set aside a creditor's statutory demand if it is satisfied that, because of a defect in the demand, substantial injustice will be caused unless the demand is set aside. The term "defect" is defined in s 9 of the Act and it includes, relevantly, a misdescription of a debt or other matter, an irregularity, a misstatement of an amount or total, or a misdescription of a person or an entity.
As I noted above in dealing with Mr Metledge's evidence-in-chief, a significant number of defects are identified and said to constitute a defect for the purposes of s 459J(1)(a) of the Act. The first is a lack of payment details. I there accept the submission put by Ms Yoo that s 459E of the Act, which specifies the elements of a creditor's statutory demand, does not require that instructions be given as to the manner in which payment of the debt may be effected. There is, in any case, no suggestion that TJM was under any genuine doubt as to how it could pay the relevant debt, not least where it would have been apparent to them that it could deliver payment to Woori's solicitors, if it wished to do so. Second, complaint is made as to incomplete address information, or a failure to identify a physical address for Woori, but it is plain that no substantial injustice has arisen from that matter, where TJM has served an application to set aside the creditor's statutory demand, apparently by delivery to Woori's registered office.
A number of challenges are made as to the underlying decision made by NCAT and reflected in the orders of the Local Court but, as I have noted above, those challenges are not available in an application of this kind. A claim is also made that the Demand did not set out the basis upon which interest was calculated. I have pointed out, above, that here the interest is not a freestanding amount but comprised in the orders made by the Local Court. Even putting that aside, the case law has recognised that a failure to explain the calculation of interest will not necessarily give rise to a basis for setting aside a creditor's statutory demand, where the nature of the interest claim is apparent: see for example Chains and Power (Aust) Pty Ltd v Commonwealth Bank of Australia (1994) 15 ACSR 544; (1994) 13 ACLC 73 and my decision in Re Golden Robot Records International Pty Ltd [2021] NSWSC 1146. Here, where the interest claimed was comprised in the orders of the Local Court, it does not seem to me that a failure to further explain would give rise to any substantial injustice if the Demand is not set aside. I note, for completeness, that TJM did not raise any question whether the interest component in the Local Court's orders should have been verified by an affidavit served with the Demand and I need not address that question.

Whether a genuine dispute is established

At times, it appeared that TJM put a contention that there was a genuine dispute as to the amount claimed in the Demand, apparently because it was suggested that NCAT's decision was incorrect or the process adopted by NCAT was incorrect. Here, as I have noted above, the decision of NCAT was ultimately reflected in the orders made by the Local Court which founded the Demand. It is not necessary to review the principles which are applicable to setting aside a creditor's statutory demand by reason of a genuine dispute at any length, although I have summarised them in Re PSR Refining Services Pty Ltd [2023] NSWSC 243 at [16]ff. There can be no genuine dispute as to the amount of the judgment debts which are recorded in orders of the Local Court, where no attempt has been made to set aside those orders or the decision of NCAT which underlies them: Re Land Enviro Corp [2013] NSWSC 731 at [7]; Re Amy Holdings (2014) 102 ACSR 150; [2014] NSWSC 1176 at [14]; Re Benjamin and Khoury Pty Ltd [2023] NSWSC 756 at [25]. For that reason alone, the application to set aside the Demand, so far as it was based on the existence of a genuine dispute, could not succeed.

TJM's offsetting claim

Finally, TJM relies on an offsetting claim in the form set out in Mr Metledge's first affidavit dated 21 June 2024, where an offsetting claim for $420,532.92 was identified, by reference to the Points of Claim said to have been filed in the proceedings in NCAT. The same claims are made in the draft Statement of Unliquidated Claim (Ex P3) to which I referred above, although they are also there joined with a number of other claims.
An offsetting claim, for the purposes of s 459H(1)(b) of the Act, is the amount of a claim or claims that a person has against the person who served a creditor's statutory demand by way of, inter alia, counterclaim or cross demand, whether or not the amount arises out of the same transaction or transactions as the debt to which the Demand relates.
In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70 at [71] Dodds Streeton JA summarised what was necessary to establish an offsetting claim, namely that the party that seeks to establish that claim: "...is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. The dispute or offsetting claim should have a 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... It is not necessary for the company to advance, at this stage, a fully evidenced claim. Something 'between mere assertion and the proof that would be necessary in a court of law' may suffice."
In Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, at [20], the Court of Appeal observed that, "to establish an offsetting claim, a party must show that there is a 'serious question to be tried' or 'an issue deserving of a hearing' as to whether the company has such a claim against the creditor".
The relevant principles were also reviewed in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] 136 ACSR 583, [2019] NSWSC 60 at [62]ff, where Bell J (as the Chief Justice then was) referred to the observations of Debelle J in Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269 and to the judgment of Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787, to which Ms Yoo also referred in submissions, and to the observations of White J in Re Citadel Financial Corporation Pty Ltd [2019] NSWSC 675 at [30], where White JA addressed the issue which Mrs Metledge has misunderstood, as follows: "In judging the sufficiency of the evidence to give rise to an offsetting claim, the question is not whether the evidence is sufficient to establish the offsetting claim or its amount, but whether it is sufficient to establish that the offsetting claim is genuine, and its genuine level... It is sufficient if there be a plausible contention requiring investigation... The offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion and not be merely fanciful or futile..."
That proposition explains why at least some evidence is necessary to establish the basis of an offsetting claim because, without at least some evidence to establish the basis of the claim, it is impossible to conclude that that claim is prima facie plausible and not merely spurious or a matter of bluster or assertion, where that claim turns on factual matters. To put it differently, the mere assertion of a claim, or the intention to bring it, does not establish that that claim has an arguable factual basis.
Here, as I noted above, TJM had asserted a very substantial offsetting claim, exceeding the amount claimed in the Demand by a large amount, for the amount of at least $420,532.92. I have not neglected the fact that, in his affidavit in reply, Mr Metledge also indicated that he also has personal claims against Woori, but they would not advance the question of any offsetting claim available to TJM, a separate entity.
The large part of the claims identified by TJM as constituting an offsetting claim, have no evidentiary support, that is capable of indicating that they are more than merely spurious, bluster or assertion. There is, for example, no evidentiary basis for the claim for legal and experts' fees, at least so far as it refers to the relevant period, and Ms Yoo points out that it appears aspects of those costs may relate to later matters; no evidence was drawn to my attention to support any claim for cleaning, rubbish removal or other associated fees; and I have pointed above to the lack of an evidentiary basis for the claim that Woori is liable for rent to April 2022, on the basis of any need to repair the premises in that period. Other particular expenses on which TJM relies are supported only by reference to the ability to recover them under the lease, but not by any evidence indicating that they were incurred. Again, it is therefore not possible to find that those matters give rise to a genuinely arguable claim, beyond bare assertion where no attempt is made to show their basis.
However, notwithstanding that TJM did not put its claim in this manner, it seems to me that an offsetting claim is here established, as a genuine offsetting claim for a shorter period and in a lesser amount than that which TJM put. I am required to have regard to that matter, notwithstanding that TJM did not put its case in that way, because s 459H of the Act imposes an obligation upon me to calculate the substantiated amount of a claim, where a genuine offsetting claim exists.
It seems to me that Mr Metledge's evidence, to which I referred above, combined with the evidence that possession was taken on 2 October 2021 (Ex P4) establishes an arguable basis for a claim that Woori, or possibly a subtenant, was in occupation of the premises from the date of termination of the lease to 2 October 2021, when possession was retaken. TJM, in Mr Metledge's affidavit, calculated rental arrears for, inter alia, the period to 30 November 2021, being 161 days at $406 per day, and there has been no challenge to that rate as the applicable daily rate. it seems to me that an arguable claim is established for rental arrears as arising under the tenancy at will, up to the date that possession of the premises was taken, on 2 October 2021. That arguable claim is available for the lesser period of 102 days at $406 per day, totalling $41,412. I exposed that calculation to both of the legal representatives although neither provided any particular assistance in addressing it.
It seems to me that an offsetting claim is established, on that limited basis, and I must therefore follow the process set out in s 459H of the Act in respect of that claim. That section provides that where, on an application of this kind, the Court is satisfied a company has an offsetting claim, it must calculate the substantiated amount of the Demand, being the 'admitted amount of the debt', (here the amount claimed in the Demand where no genuine dispute has been established) less the "offsetting total". The "offsetting total" is the amount of the offsetting claim, which I have here calculated as $41,412 on the basis noted above. The substantiated amount is therefore the amount claimed in the Demand of $78,300.42 less the amount of the offsetting claim that has been established, of $41,412, being a total of $36,888.42. In accordance with the requirements of s 459H of the Act, I will order that the Demand be varied so that it is reduced to a Demand in the amount of $36,888.42 on that basis.
I should emphasise that, in reaching that result, I am not required to determine the ultimate result of any proceedings which may be brought by TJM to recover that amount, or any much larger amount, or even to determine the likelihood that such proceedings would ultimately be brought. I recognise that Ms Yoo submits that Woori would rely, in response to such a claim, on a defence that the tenancy at will terminated upon its previous failure to pay. It is sufficient to establish an offsetting claim that that claim is genuinely arguable; that is not excluded by the availability of an arguable or even a strong defence to Woori; and it is not necessary for TJM to establish that it will ultimately succeed in such a claim.

Costs

Finally, I should address the question of costs. TJM sought to set aside the Demand on several bases, and succeeded on a narrow basis, in establishing an offsetting claim for a lesser amount and on a much narrower ground than it had asserted. Woori, in turn, resisted the existence of any offsetting claim, although it has successfully displaced aspects of TJM's claim, including the claim to set aside the Demand for defects in the Demand, for a genuine dispute and for the wider offsetting claim advanced by TJM. While TJM has had a measure of success, that measure of success has come at significant cost to both parties, by reason of the breadth of the case that has been brought dealing with several aspects on which TJM has failed.
In those circumstances, the Court's jurisdiction as to costs is to be exercised in a manner that will produce a just position as between the parties. Subject to hearing the parties briefly, I will make no order as to the costs of the proceedings. Having heard the legal representatives, I will make the further order that there be no order as to the costs of the proceedings. I note that Mrs Metledge did not contend to the contrary.

Orders

I make the following orders:
Order that the creditor's statutory demand be varied to substitute the amount of $38,888.42 for the amount of $78,300.42 and declare the demand as varied had effect, as so varied as and from when the demand was served on the Plaintiff.
No order as to costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 October 2024

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