Endeavour Film Management Pty Ltd & Anor v Fox Studios Australia Pty Ltd

LOWER COURT Supreme Court (Master) JURISDICTION : LOWER COURT SC 1961/03 FILE NUMBER(S) : LOWER COURT Master Macready JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1961/03 ENDEAVOUR FILM MANAGEMENT PTY LTD & ANOR v FOX STUDIOS AUSTRALIA PTY LTD JUDGMENT 1 By an amended notice of appeal, Endeavour Film Management Pty Ltd and its sole director and shareholder, Ian Chandler, appeal against a decision of Master Macready dismissing an originating process seeking to set aside a statutory demand pursuant to the Corporations Act 2001 (Cth), s 459G. 2 The appeal lies to the court under the Supreme Court Rules 1970, Pt 60 r 10. The Supreme Court Act 1970, s 75A(5) provides that the appeal is by way of rehearing. It has been held, however, that where the Master's decision involves an exercise of discretion, the same principles apply to the appeal as apply to an appeal from a single judge to the Court of Appeal (Do Carmo v Ford Excavations Pty Ltd (1981) 1 NSWLR 409, Morrison v Judd (unreported, NSWCA, 10 October 1995). The appellants must show that the Master acted on a wrong principle such as failing to take into account a material consideration (House v The King (1936) 55 CLR 499 at 505). 3 It is convenient to deal with ground 3 of the amended notice of appeal first. It was that the giving of evidence and/or cross-examination of Chandler at the hearing of 4 September 2003 should have been allowed. 4 Chandler appeared in person at the hearing before the Master on 4 September 2003. Counsel for the respondent, Fox Studios Australia Pty Ltd, sought leave to file an additional affidavit, to which Chandler raised no objection. 5 No doubt the Master dealt with the matter during the course of a busy morning. The hearing before him was quite short. During it, counsel for Fox Studios submitted that there was no evidence of the amounts claimed by Endeavour in the proceedings it had instituted in the District Court against Fox Studios which were claimed by the appellants to be the basis for a genuine dispute in an off-setting total in excess of the statutory demand for the purposes of the Corporations Act 2001 (Cth), s 459H. 6 In his submissions in response, Chandler said: "As regards the damages, it may be that I need to give evidence in relation to clarify some of those". The following exchange took place: "Master: That evidence should have been put on by affidavit in these proceedings. Chandler: That is why I think I am going to have to give some evidence in relation to damages. Master: It's too late. We are here today dealing with the evidence as it is."

The Master received the statutory demand as an exhibit and the exchange continued: "Chandler: I should be allowed to give evidence in relation to the damages. Master: What do you say in relation to that? Hughes: Nothing by way of reply but I do object to putting on further evidence. Chandler: It is already outlined in one of the affidavits of myself, paragraph 14 of the 17 April affidavit. Master: There has been an application that there should be leave to have Mr Chandler adduce evidence about actual damages that he said had been suffered in the cross claim which has been raised. There is reference to that in paragraph 14 in his affidavit of 17 April 2003 and the matter is also referred to in the statement of claim annexed to the affidavit of 3 July 2003. Evidence of that cross claim for damages cannot be met now simply by giving evidence and accordingly I don't propose to give leave to call further evidence." 7 Mr Hughes who appeared before me for Fox Studios submitted that the Master had not erred in refusing leave to Chandler to adduce viva voce evidence at the hearing. He pointed out that there is a public interest in dealing with applications to set aside statutory demands promptly in order that the position of creditors of companies failing to pay upon demand may be determined with expedition. He submitted there was a public interest in finalising matters and court lists and the convenience of other litigants was to be taken into account. 8 Case management principles are a relevant consideration but they should not be allowed to prevail over the injustice of shutting an applicant out from an arguable position (Queensland v J L Holdings Pty Ltd (1996-1997) 189 CLR 146 at 155). 9 In the affidavit which accompanied the originating process to set aside the statutory demand which was filed and served within 21 days of the service of the statutory demand as required by the Corporations Act 2001 (Cth), s 459G(3), Chandler alleged that there was a genuine dispute between Endeavour and Fox Studios in that damages had resulted to Endeavour due to a breach of agreement on the part of Fox Studios and such damages were greater than the amount claimed. 10 The allegation having being made in the initial affidavit, it may be supplemented (Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452). Furthermore, the sufficiency of the evidence with respect to the amount of an off-setting claim is to be determined at the time the application is heard by the court and not when the application is filed (Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 24 ACSR 194 at 204, on appeal Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 80 FCR 296). 11 If the learned Master was saying that evidence of damage could not be expanded upon in later affidavits then, with respect, he misdirected himself. If he was saying that Fox Studios was not in a position to meet any evidence as to damages given by Chandler on that day, the Master misdirected himself. 12 It is not the task of the court to determine the off-setting claim on its merits. Nor is it its task to make a final assessment of damages. If the court thinks the amount claimed is greater than the real worth of the claim, it is appropriate for the court to make an order subject to conditions (Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (No 2) (1994) 122 ALR 717). 13 While there is a public interest in the finalisation of matters before the court that must be weighed against the injustice of shutting a company with a genuine dispute out of challenging a statutory demand. If evidence to show the basis upon which the claimed loss is said to arise and how it is calculated is not given, a court may not be able to find that there is a genuine off-setting claim for the purposes of the Corporations Act 2001 (Cth), s 459H (Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 at par 18). 14 I am, in consequence, of the view that the appellants have made out the third ground of the amened notice of appeal. 15 The appellants sought to read before me a further affidavit of Chandler setting forth the evidence as to damages he wished to adduce before the Master. 16 The Supreme Court Act 1970, s 75A(8) provides that where the appeal is from a judgment after a trial or hearing on the merits, the court shall not receive further evidence except on special grounds. 17 In my view, special grounds exist in this case in light of my allowing ground 3 of the amended notice of appeal. Mr Hughes did not submit to the contrary but accepted, correctly in my view, that I should allow the affidavit to be read. 18 It reveals that the claim in the District Court relates to a lease of premises by Fox Studios to Endeavour and an alleged arrangement for a substituted rent payment programme. 19 Endeavour had fallen into arrears. It was agreed that rent, outgoings, internet and telephone costs would be paid by Endeavour by two instalments totalling $6,000 per month. It was also agreed that a company associated with Endeavour would take over possession of the leased premises. Some payments were made late and one cheque was dishonoured and subsequently met. This led to a further arrangement that payments would be made weekly at the rate of $1,500. 20 The affidavit further reveals that portion of the damages claimed in the District Court arise pursuant to a deed whereby the associated company assigned to Endeavour its claim to damages as a result of Fox Studios' termination of the lease and its eviction from the premises. 21 There is no mention of that aspect in the affidavit accompanying the originating process. The deed was executed after initiation of the originating process. Mr Hughes submitted that it could not be relied upon. Chandler submitted the damage was suffered at the time of eviction and it mattered not that the assignment took place thereafter. 22 I do not need to determine this point because I am of the view that the evidence as to damage establishes a bona fide calculation in excess of the statutory demand of $30,256.70. 23 Advertising costing $23,629.10 was placed in the Yellow Pages advertising telephone numbers issued by Fox Studios. Chandler explained that he estimated at the time the advertisements were placed that they would add $10,000 per week to the revenue of both companies and he estimated that with respect to Endeavour to be 50%. Endeavour paid the associated company $233,540 to compensate it for losses in relation to the printing of casting cards. It was explained that the calculation was arrived at by assessing the number of cards remaining, as well as allowing for a discounted printing cost for printing the cards in bulk. There was, in addition, a claim for $960 for moving and storage, $1,200 for stationary and a general unliquidated claim of $300,000 for damages for breach of contract. 24 Mr Hughes submitted that I should ignore this evidence because there was no documentary corroboration of the assertions and no indication of the lack of utility of the advertising on the cards in that they might have included other telephone numbers that remained appropriate. 25 I reject this submission. What constitutes a genuine dispute for the purpose of the legislation has been variously described. The Court should be satisfied that there is a serious question to be tried (Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 47 FCR 451 at 467). The statute connotes a plausible contention requiring investigation raising much the same sort of considerations as the serious question to be tried criterion on an application for an interlocutory injunction (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787). The court must be satisfied that there is a dispute that it is not plainly vexatious or frivolous (Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39). The task is no more onerous than that which would confront a party seeking to meet an application for summary judgment (Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA (1994) 15 ACSR 347 at 354). 26 That task does not require that an applicant set out in admissible form the evidence by which the material facts are to be proved. Rather, it requires the verification of material facts which will enable the court to be satisfied whether there is a serious question as to the existence of an off-setting claim (Scanhill 47 FCR at 455, quoted with approval in Graywinter 21 ACSR at 585). 27 The fourth ground of the amended notice of appeal was that a request at the hearing of 4 September 2003 by Chandler to allow the filing of a further affidavit by him, should have been allowed. In view of the attitude I take to the third ground of appeal, it is unnecessary for me to determine this issue. 28 The fifth ground in the amended notice of appeal was that the statutory demand was fundamentally deficient in that it was not issued by a solicitor, director or executive officer of Fox Studios. 29 This claim was not raised in the affidavit which accompanied the originating process. The terms of the Corporations Act 2001 (Cth), s 459G define the jurisdiction of the court by imposing the time requirement as an essential condition to the right to apply to set aside a statutory demand (David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265). 30 It follows that an affidavit filed outside the 21 day period which raises a new ground to set aside a statutory demand, as opposed to an affidavit expanding the minimum grounds contained in a complying affidavit, cannot be used on an application to set aside the demand (Energy Equity Corporation Ltd v Sinedie Pty Ltd (2001) 166 FLR 179). I therefore dismiss ground five. 31 The first ground in the amended notice of appeal was that the Master erred in finding that no genuine dispute existed between Endeavour and Fox Studios that satisfied the setting aside of the statutory demand. The second ground was that the Master erred in finding that Endeavour did not have an off-setting claim or cross-claim against Fox Studios that satisfied the setting aside of the statutory demand. 32 The Master determined that the payment arrangements agreed between the parties were not enforceable variations of the lease because they lacked consideration. He went on to deal with the question whether a case for equitable estoppel arose. The Master quoted from Waltons Stores (Interstate) Ltd v Maher (1987-1988) 164 CLR 387 at 428-429 the six requirement for such a claim: "In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise." 33 In my view an arguable case has been established that each of the requirements is satisfied. 34 Endeavour assumed that there was a binding agreement with Fox Studios that the rental provisions in the lease had been varied to a different regime. 35 There is an arguable case that Fox Studios induced Endeavour to adopt the assumption that a legal relationship varying the terms of the lease had been entered into. 36 Fox Studios gave Endeavour permission to allow its related company to take over possession of the premises. Endeavour entered into an agreement with its related company that it would pay in accordance with rental programme agreed by Endeavour with Fox Studios. A case is made out that Endeavour acted in reliance on its assumption. 37 It is also reasonably open to argument that Fox Studios knew or intended Endeavour so to act. 38 That Endeavour's action will occasion determent if the assumption is not fulfilled is made out by its putting its related company into possession on the basis of its assumption. 39 Finally, it is arguable that Fox Studios failed to act to avoid that determent. 40 Mr Hughes submitted that Fox Studios did act to dispel any belief on the part of Endeavour by insisting on a return to the terms of the lease. 41 Two things may be said about that proposition. First, that action was taken well after Endeavour, with the knowledge of Fox Studios, had put its associated company into possession. 42 Secondly, there was no evidence that the new regime was subject to acceleration of payment in the event of breach or that it was an indulgence that could be withdrawn at any time by Fox Studios with a reversion to the original terms of the lease. 43 Mr Hughes submitted that if equitable relief was claimed, Endeavour had not done equity in that it had fallen behind the substituted regime. Mr Chandler submitted that that was not so. He submitted that Endeavour had complied with the timetable after the payment schedule was increased to $1,500 per week. 44 I do not propose to resolve that evidentiary matter on this appeal. Again, I reiterate that the task of the court is to determine whether a bona fide dispute exists. The task is not to determine the merits of the matter. 45 With respect to the Master, I am of the view that he misdirected himself in the application of the principles of equitable estoppel to the matter before him. In my view grounds one and two have been made out. 46

I will hear the parties on costs and on appropriate orders. Under the Corporations Act 2001 (Cth), s 459M the court may, when setting aside a demand, impose conditions (Jesseron, Macleay Nominees, Asia Pacific Glass v Sindea Trading Co [2003] NSWSC 334). I intend to place conditions upon the setting aside of the statutory demand to ensure that the appellants prosecute the proceedings in the District Court with dispatch. I direct the parties to bring in short minutes of orders reflecting these reasons.

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