Di Francesca Holdings P/L v Hatziplis Holdings P/L

CATCHWORDS : CORPORATIONS - Application to set aside Statutory Demand - Whether genuine dispute as to liability for debt - Whether genuine offsetting claim by way of counter claim, set-off or cross demand - Potential available relief - Counter claim able to be quantified in monetary terms.

Corporations Act 2001 (Cth) Retail Leases Act 1994 (NSW) LEGISLATION CITED : Fair Trading Act 1987 (NSW) Trade Practices Act 1974 (Cth) Supreme Court Act 1970 (NSW)

Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; 12 ACLC 669 Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411 Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NsWSC 743 CASES CITED : Elm Financial Services v MacDougall [2004] NSWSC 560 Greywinter Property Pty Limited v Gas and Fuel Superannuation Fund (1996) 70 FCR 452 Process Machinery Australia Pty Limited v ACN 057 262 590 Pty Limited [2002] NSWSC 45 POS Media v B Family (2003) 21 ACLC 533 Tokich Holdings Pty Limited v Sheraton Constructions NSW Pty Ltd (in liq) (2004) 22 ACLC 955

Di Francesca Holdings Pty Ltd PARTIES : v Hatziplis Holdings Pty Ltd

Plaintiff: F Hicks COUNSEL : Defendant: R D Marshall

Plaintiff: William Cotsis & Associates SOLICITORS : Defendant: Crichton Brownes Solicitors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

5871/04 DI FRANCESCA HOLDINGS PTY LTD v HATZIPLIS HOLDINGS PTY LTD JUDGMENT 1 HIS HONOUR: This is an application pursuant to s 459G of the Corporations Act 2001 to set aside a Statutory Demand, dated 7 October 2004. 2 The plaintiff had entered into a lease of premises at 94 King Street, Newtown from the defendant for a term commencing on 15 August 2003 and terminating on 31 August 2004. The plaintiff vacated the premises on or about 31 March 2004. 3 The Statutory Demand served on behalf of the defendant demanded the payment of rent totalling $32,589.30 plus GST claimed to be payable on the first day of each of the month, from April to August 2004, together with interest of $14,130.55 plus GST. The total amount of the demand was $46,719.85 plus GST. 4 There was no issue raised before me that the amounts claimed for rent were the amounts which the lease provided should be payable by way of rent. Nor was there any issue before me as to the calculation of interest. Nor was there any dispute that the claimed amounts had not been paid. 5 However, the plaintiff claims that there is a genuine dispute as to whether it is liable for the claimed debt. It also claims that there is a genuine offsetting counter claim, set-off, or cross demand available to it. The basis for these contentions, as it appears from the supporting affidavit, is that the plaintiff claims that it was compelled to vacate the premises because the conditions in the shop became unbearable, due to the temperatures over summer and the lack of air conditioning or air circulation in the shop. 6 It was claimed that, between Christmas 2003 and March 2004, the shop was only open on cooler days; that the staff resigned because of the conditions; that custom was lost because of the conditions; that the money spent by the plaintiff on fit-out was wasted; that stock, asserted to have a value of either $150,000, or up to $300,000, was lost; and that there was a loss of profit asserted to be approximately $250,000. 7 In his supporting affidavit, Mr Di Francesca, a director of the plaintiff, deposed to having had a conversation with the leasing agent before the lease was entered into in the following terms: "During the inspection with the agent I asked: 'Is there air circulation in this shop?' Mr Ginopoulos, the agent from Kelly & Sons replied, 'If you keep the back door open it will cause air circulation'. We did this at the initial inspection and it seemed to work."

8 However, keeping the back door open during the summer months was not practicable because hot air from air conditioning units from adjacent shops was blown into the premises through that door. 9 By 2 December 2004, the plaintiff had given instructions to its lawyers for the commencement of proceedings in the Administrative Decisions Tribunal, pursuant to ss 71 and 71A of the Retail Leases Act 1994 (NSW). It makes a retail tenancy claim pursuant to s 71 and an unconscionable conduct claim pursuant to s 71A. It claims, in those proceedings, reasonable compensation and damages and an order which appears, in substance, to be a claim for relief from the payment of the unpaid rent and interest, pursuant to s 72(1)(b) of that Act. A claim is also made for alleged breaches of the Fair Trading Act 1987 (NSW). 10 The principles upon which the present application is to be determined are not in doubt. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 12 ACLC 669, McLelland CJ in Eq considered the expression "genuine dispute" where it occurs in s 459H. His Honour said: "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' … or 'a patently feeble legal argument or an assertion of facts unsupported by evidence'…

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, the merits of, or resolving, such a dispute."

11 See also Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605. 12 In Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411, Barrett J said [at 23] that: "… the task faced by a company challenging a statutory demand on the 'genuine dispute' ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. "

13 Whether the plaintiff has an "offsetting claim" is determined by asking whether it has a genuine claim against the respondent by way of counter claim, set-off, or cross demand, even if it does not arise out of the same transaction or circumstance as the debt to which the demand relates. 14 In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743, Palmer J said (at [18]) that for such a claim to be a genuine one, it must be advanced in good faith for an amount claimed in good faith. In this context, his Honour said, that: "'Good faith' means arguable on the basis of facts asserted, with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith, unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is clearly lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of section 459H(1)(2)". 15 This matter was taken further by Barrett J in Elm Financial Services v MacDougall [2004] NSWSC 560. After observing that s 459H contemplates that an offsetting claim must be capable of being quantified in monetary terms, his Honour said (at [19]): "Despite this clear need, according to the terms of the legislation, to quantify an offsetting claim in money terms, it is not necessary that the party seeking to have the statutory demand set aside should particularise the amount of the claim to the last dollar and cent. There may be various ways of approaching the issue of assessment at this early stage. It is sufficient that there be, on the evidence, a plausible and coherent basis for asserting a claim to a sum which, despite elements of uncertainty, can be seen to be, in any event, greater than the amount of the debt the subject of the statutory demand. Of course, the narrower the margin between the alleged debt and the plaintiff's estimate or initial quantification, the greater will be the need for particularity in assessing the amount of the offsetting claim." 16 The principal submissions made by Mr Marshall of counsel, who appeared for the defendant, were as follows. First, that the plaintiff's contentions raised an asserted offsetting claim. Secondly, that the only extent to which that claim was quantified, so as to qualify as a genuine offsetting claim, was to the extent of $17,800, being the claimed costs of fitting out the shop. This, it was said, was the only part of the claim for which evidence had been adduced to show how the claimed loss was calculated. 17 As to the balance of the asserted offsetting claim, it was submitted that the evidence amounted only to a bare assertion that the value of lost or damaged stock was $150,000, and that there had been lost trading profit of $250,000. 18 Counsel also submitted that certain of the contentions raised by the plaintiff in submissions, were not delineated in the supporting affidavit filed and served with the application, either expressly, or by necessary inference. Hence, it was submitted that those contentions were not available to the plaintiff. (As to the basis for that submission, see Greywinter Property Pty Limited v Gas and Fuel Superannuation Fund (1996) 70 FCR 452; Process Machinery Australia Pty Limited v ACN 057 262 590 Pty Limited [2002] NSWSC 45 at [21] to [22]; POS Media v B Family (2003) 21 ACLC 533 at 541; Tokich Holdings Pty Limited v Sheraton Constructions, New South Wales Pty Ltd (in liquidation) (2004) 22 ACLC 955 at 966; Elm Financial Services Pty Limited v MacDougall [2004] NSWSC 560 at [7]). 19 The contentions raised by the plaintiff which, it was submitted, were not available to it were: first, that the defendant had failed to mitigate its loss by not acting reasonably in seeking to re-let the premises; secondly, that the lease had been surrendered by the plaintiff when it vacated the premises and the surrender had been accepted by the defendant; and thirdly, that the defendant was precluded from seeking to recover the claimed outstanding rent by serving a Statutory Demand under the Corporations Act because of the requirements of s 68 of the Retail Leases Act. 20 I think there is substance in these contentions. However, those contentions were not the principal grounds upon which the plaintiff maintains its claim. Whether or not the first two grounds are sufficiently delineated in the supporting affidavit, it does not appear to me that the evidence establishes that there is a genuine issue which would entitle the plaintiff to succeed on those two grounds. I do not find it necessary to consider the third contention, for reasons which will appear later. 21 Counsel for the defendant also submitted that the plaintiff's claim based upon the alleged representation by the agent was without substance because the representation, which I have quoted, was one about how air could be made to circulate in the shop. It was not a representation, so it was submitted, about whether, in the summer months, it would be practicable to adopt that method of securing the circulation of air in the shop. I will deal with that point first. 22 In my view, it is a point which goes to the merits of the plaintiff's claim, not to whether there is a genuine dispute. It may well be - I do not say that it is - that in the context in which the alleged representation was made, it was impliedly conveyed to the plaintiff that keeping the back door open was a practicable means of achieving circulating air, which would achieve suitable conditions in the shop for the retail operation. 23 If, in the context in which the representations were made, that was its effect then, prima facie, it would be a representation as to a future matter where the onus would lie upon the plaintiff to show that the agent had reasonable grounds for making the alleged statement. In my view, the evidence establishes a genuine issue as to whether the plaintiff has a claim for relief for misleading and deceptive conduct, which may have been engaged in, in breach of s 52 of the Trade Practices Act 1974 (Cth), or s 42 of the Fair Trading Act; such conduct having been engaged in by an agent of the defendant. 24 If such a claim were established, the relief to which the plaintiff may be entitled need not be confined to an offsetting claim for damages. 25 Orders may be made under s 87 of the Trade Practices Act and the cognate provision, s 72 of the Fair Trading Act, avoiding the lease from such time as the Court might declare, or varying its terms, including by a variation which provided, in substance, for an abatement of rent. 26 Although the potential availability of such relief would not be sufficient to create a genuine dispute that the claimed debt currently exists, it does mean that the plaintiff has a genuine counter-claim, which is capable of being quantified in monetary terms as being, at least, equal to the whole of the debt the subject of the Statutory Demand. 27 In Elm Financial Services v MacDougall, Barrett J included, amongst those claims which may be taken into account for the purposes of s 459H, claims not only in debt or damages, but having other monetary consequences, such as those as may be available under the Trade Practices Act. I agree. 28 Further, the evidence establishes that there is a genuine counter-claim for damages in amounts which are calculated as follows. First, there is a calculated assessment of the amount claimed for wasted fit-out costs of $17,800. 29 Secondly, there is in the evidence a claim that for each week in the three months to 31 March 2004, the directors had to pay $2000 to cover costs, due to there being minimal takings. That is a calculated claim which would total about $24,000. 30 Thirdly, there is a claim for loss of stock, which has not been quantified, except by way of an assertion as to the cost of the stock lost. 31 Fourthly, there is a claim for loss of custom, which has not been quantified or calculated in any way and in respect of which there is an assertion that there is a loss of profits of $250,000. 32 Finally, on any cross-claim for damages, if it were established, the plaintiff would be entitled to interest under s 94 of the Supreme Court Act 1970 (NSW), or any equivalent provision in the Court in which such a claim were made, on the losses, which it may be able to prove. Whilst the figures attributed to the loss of stock and the loss of custom or profits are bare assertion, there is evidence which establishes a genuine claim for some not insubstantial sums in respect of those matters. 33 Applying what Justice Barrett said in Elm Financial Services Pty Limited v MacDougall, at paragraph 19, I am satisfied that there is a plausible and coherent basis for the plaintiff asserting a claim to a sum which, despite elements of uncertainty, can be seen to be greater than the amount of the debt the subject of the Statutory Demand. For these reasons, I am satisfied that both of the grounds in subs 459H(1)(a)(b) are made out. 34 Pursuant to s 459H(3), I must set aside the Statutory Demand. 35 I make an order in terms of paragraph 1 of section A of the Originating Process. 36 I order the defendant to pay the plaintiff's costs of the application. 37 The exhibits may be returned after 28 days.

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.