Gabriel Hotels Pty Ltd v Corlita Pty Ltd

LEGISLATION CITED : Corporations Act 2001 (Cth) Evidence Act 1995 (NSW)

Derma Pharmaceuticals Pty Limited v HSBC Bank Australia Limited (2005) 188 FLR 373 Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785; 12 ACLC 669 Re Morris Catering Australia Pty Limited (1993) 11 ACSR 601; 11 ACLC 919 CASES CITED : Spencer Constructions Pty Limited v G & N Aldridge Pty Limited (1997) 76 FCR 452 MacLeay Nominees Pty Limited v Belle Property East Pty Limited [2001] NSWSC 743 Elm Financial Services v MacDougal [2004] NSWSC 560 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1998) 16 ACLC 529

TEXTS CITED : F Assaf, Statutory Demands: Law and Practice (2008) LexisNexis Butterworths

Plaintiff: Gabriel Hotels Pty Ltd PARTIES : Defendant: Corlita Pty Ltd

COUNSEL : Plaintiffs: C D Wood Defendants: A M Rice (director of defendant)

SOLICITORS : Plaintiffs: Dibbs Barker Defendants: n/a

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

2010/92061 Gabriel Hotels Pty Ltd v Corlita Pty Ltd JUDGMENT 1 HIS HONOUR: This is an application under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand. The defendant formerly owned six units in a building known as the Adelphi Hotel in Flinders Lane, Melbourne. These included a restaurant and bar on level two. The plaintiff leased the six units, including level two, from the defendant pursuant to lease agreements entered into in August 2006. The defendant has sold the leased premises. Completion of the sale occurred on 8 December 2009. 2 The statutory demand is dated 23 March 2010. In it the defendant claims a debt of $47,457.49 as outgoings due and payable by the plaintiff in respect of certain levels of the building. It is clear from the affidavit verifying the statutory demand that the defendant claims these as outgoings payable up to 8 December 2009. There is no dispute that the moneys claimed in the statutory demand were owing and are unpaid. 3 The issues on the present application are first, whether the application has been brought within time. Secondly, if so, whether, as the plaintiff contends, a payment of $4,979.42 made to the defendant on 14 January 2010 was made by way of accord and satisfaction of all debts due by it to the defendant. Thirdly, whether the defendant has an offsetting claim or claims within the meaning of s 459H and if so, whether the amount of the debt less the offsetting claim is less than the statutory minimum, and if so, in what amount. Was the application made in time? 4 I will deal first with the question as to whether the application has been made within time. Section 459G provides: " 459G Company may apply (1) A company may apply to the Court for an order setting aside a statutory demand served on the company. (2) An application may only be made within 21 days after the demand is so served. (3) An application is made in accordance with this section only if, within those 21 days: (a) an affidavit supporting the application is filed with the Court; and (b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company. " 5 It is common ground that the application and the affidavit supporting the application were filed and served on 15 April 2010. The application was filed and served within time if the statutory demand was served on the plaintiff on or after 25 March 2010. If it were served on the plaintiff before 25 March 2010 then the application is out of time and would have to be dismissed. The statutory demand was served by post. 6 Mr Rice, the sole director of the defendant, deposes that he posted the envelope enclosing the statutory demand and affidavit in support of it in a letterbox outside 333 Collins Street, Melbourne. The envelope was addressed to the defendant at its registered office at level 30, 60 Castlereagh Street, Sydney. The envelope bore the appropriate postage. Mr Rice did not say on what day he placed the envelope, including those documents, in the letterbox. 7 The letterbox contained a sign advising that mail posted before 6 pm would be delivered to interstate metropolitan areas by the second business day. The defendant has produced a brochure published by Australia Post which states as a guideline, based on reasonable expectations and experience, that the maximum number of business days to deliver letters by regular post within Australia between metropolitan areas of capital cities in different States is two business days. 8 The sole director of the plaintiff, Mr Damien Hodgkinson deposes that the demand, together with the supporting affidavit, were delivered to the defendant by ordinary post on 26 March 2010. The registered office of the plaintiff is not its principal place of business. Its principal place of business is in Flinders Lane, Melbourne where it carries on its business of operating the Adelphi Hotel. There is other evidence that at the time in question the plaintiff company did not occupy the premises which are its registered office. 9 Mr Hodgkinson did not explicitly state that the demand and supporting affidavit were delivered to the company's registered office on 26 March 2010. It may be inferred that he is not an occupier of the registered office. If he was intending to convey that the documents were delivered to the registered office on 26 March, he did not state the source of the knowledge or information as to when documents were so delivered. On the other hand, there is no suggestion in the evidence that the documents were redirected through the post to the defendant's principal place of business. 10 As the statutory demand and supporting affidavit are both dated 23 March 2010, it is clear they were not posted before 23 March 2010. The advice issued by Australia Post would indicate that if the documents were posted on 23 March, they would ordinarily be delivered on either 24 or 25 March. If they were posted on 24 March, then they would ordinarily be delivered on 25 or 26 March. 11 The plaintiff relied upon the presumption in s 160 of the Evidence Act 1995 (NSW). That section relevantly provides: " 160 Postal articles

(1) It is presumed (unless evidence sufficient to raise doubt about the presumption is adduced) that a postal article sent by prepaid post addressed to a person at a specified address in Australia or in an external Territory was received at that address on the fourth working day after having been posted. " That presumption arises unless there is evidence sufficient to raise doubt about the presumption. 12 I think the evidence of the statements made by Australia Post is sufficient to raise doubt about the presumption in this case. I do not think that I should find, on the basis of s 160 of the Evidence Act, that the documents were received at the postal address four working days after being posted. Indeed, that would be inconsistent with Mr Hodgkinson's evidence. 13 Counsel for the plaintiff did not dispute that the onus would lie upon the plaintiff to establish that the application was made within time (see Derma Pharmaceuticals Pty Limited v HSBC Bank Australia Limited (2005) 188 FLR 373). Although there are deficiencies in the evidence of Mr Hodgkinson as to how he was in a position to say that the demand was served on 26 March 2010, his evidence to that effect was read without objection. 14 I do not think the evidence is rebutted by the possibility, arising from the evidence of Mr Rice, that the documents may have been delivered on 24 March. That possibility only arises if the documents were posted on 23 March. There is an evidentiary onus on the defendant to say on what day the documents were posted. I could not be satisfied that they were posted on the 23rd, as distinct from the 24th of March. Even if the documents were posted on 23 March, the evidence of Australia Post is equally consistent with their being delivered on the 25th as it is with their being delivered on the 24th of March. 15 That being the state of the evidence, and having regard to the statement made by Mr Hodgkinson, I am satisfied, on the balance of probabilities, that the documents were delivered to the registered office of the plaintiff by no earlier than 25 March. Hence, I conclude that the application is within time. Accord and satisfaction 16 I turn to the second question. Mr Hodgkinson deposed that on 22 December 2009 the defendant issued a statutory demand for $4,979.42. This demand was for outstanding rent for the period from 1 to 7 December 2009. The amount demanded was paid on 14 January 2010. Mr Hodgkinson deposed that he understood that the amount demanded was the total amount payable by the plaintiff to the defendant as a result of the sale of the six units by the defendant to the purchaser from it. That understanding provides no basis at all for a defence of accord of satisfaction. 17 The fact that the defendant made a demand for rent could not be taken as amounting to some representation or promise that the amount of rent demanded was the only debt payable, or that payment of the rent demanded would satisfy all of the outstanding obligations of the plaintiff to the defendant. I do not think that there is a genuine dispute that the amount claimed in the statutory demand is a debt due and payable by the plaintiff to the defendant. Offsetting claim 18 Section 459H provides: " 459H Determination of application where there is a dispute or offsetting claim (1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following: (a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; (b) that the company has an offsetting claim. (2) The Court must calculate the substantiated amount of the demand in accordance with the formula:

where: admitted total means: (a) the admitted amount of the debt; or (b) the total of the respective admitted amounts of the debts; as the case requires, to which the demand relates. offsetting total means: (a) if the Court is satisfied that the company has only one offsetting claim - the amount of that claim; or (b) if the Court is satisfied that the company has 2 or more offsetting claims - the total of the amounts of those claims; or (c) otherwise - a nil amount. (3) If the substantiated amount is less than the statutory minimum, the Court must, by order, set aside the demand.

(4) If the substantiated amount is at least as great as the statutory minimum, the Court may make an order: (a) varying the demand as specified in the order; and (b) declaring the demand to have had effect, as so varied, as from when the demand was served on the company. (5) In this section: admitted amount , in relation to a debt, means: (a) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt - a nil amount; or (b) if the Court is satisfied that there is a genuine dispute between the company and the respondent about the amount of the debt - so much of that amount as the Court is satisfied is not the subject of such a dispute; or (c) otherwise - the amount of the debt. offsetting claim means a genuine claim that the company has against the respondent by way of counterclaim, set off or cross demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates). respondent means the person who served the demand on the company. (6) This section has effect subject to section 459J ." 19 The plaintiff says that it has two offsetting claims. The first is a claim for damages arising from an alleged failure by the defendant to repair or replace the air-conditioning system on level two of the Adelphi Hotel. Mr Hodgkinson deposes that under the lease for level two the defendant was required to repair the air-conditioning system so that that floor could be used as a restaurant and bar. The plaintiff says that the defendant failed to undertake those works. 20 There was a dispute between the parties which led to proceedings being brought in the Victorian Civil and Administrative Tribunal in which each party made claims against the other. Those proceedings were resolved by a deed of settlement on 22 December 2008. The deed provided in cl 2.1(a) that the defendant would perform the "Air-Conditioning Works" at its own cost on or before 31 December 2009. The "Air-Conditioning Works" were defined to mean the repair or replacement of the air-conditioning systems (as necessary) on level two and unit 703. Clause 7.1 of the deed of statement provided: " 7.1 Subject to [Corlita Pty Ltd] complying with its obligations under this Deed, [Gabriel Hotels Group Pty Ltd] , [Damien Hodgkinson] and [Huxtable Grange Nominees Pty Ltd] hereby jointly and severally release and forever discharge the [sic] Corlita and [Andrew Rice] from and against all actions, claims, suits, demands, causes of action, damages, liabilities and costs of whatever nature and howsoever arising which they (or any of them) now has or at any time in the future may have, or but for the execution of this Deed, could or might have against Corlita and Rice (or any of them) in respect of or in connection with any of the matters the subject of this Deed. " 21 Mr Hodgkinson deposed that the defendant did not undertake the necessary repair work to the air-conditioning system on level two. He deposed: " 17. As a result of the Defendant's failure to repair the air-conditioning system on Level Two that Level could not be used as a restaurant and bar. The Plaintiff has suffered financial loss which it seeks to recover from the Defendant. These losses total at least $63,000 being a portion of the rent and outgoings attributable to Level Two, for the months of January, February and March, in each of the years 2007, 2008 and 2009. the losses incurred by the Plaintiff exceed the amount claimed by the Defendant in the Demand. " 22 It appears from emails tendered through Mr Rice that on 17 February 2009 the defendant accepted a quotation from an air-conditioning supplier or contractor for the replacement of the air-conditioning unit in room 703. On 19 March 2009 the same contractor provided a quotation for the installation of air-conditioning to level two. 23 Mr Rice tendered on this application an email from the air-conditioning contractor of 16 April 2009 in which Mr Campbell, a director of the contractor said: " As per my conversation with [Mr Hodgkinson] ... I was told that he believes that the Air Conditioning Unit should be installed up on the 9th floor of the building as opposed to the Kitchen Area on the 1st floor.

He also told me that he would be sending you some information regarding this matter.

That is why, at this point, we have not proceeded with any of the works.

24 The defendant says, in short, that whilst the work of replacing the air-conditioning system on level two has not been done, the reason for that being the case is that the plaintiff turned away the contractor who was to do the work. 25 On an application to set aside a statutory demand, including an application based upon an offsetting claim, the question for the court is whether there is a genuine dispute as to the debt or whether the company has a genuine claim by way of counter claim, set-off or cross demand. It is not a function of the court on such an application to resolve the merits of such a claim, as distinct from determining whether the claim is genuine. (See Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACSR 785 at 787-788; 12 ACLC 669 at 671-672; Re Morris Catering Australia Pty Limited (1993) 11 ACSR 601 at 605; 11 ACLC 919 at 922 and Spencer Constructions Pty Limited v G & N Aldridge Pty Limited (1997) 76 FCR 452 at 464.) 26 The defendant submits that the matter raised by the plaintiff as an offsetting claim was not a real dispute and is spurious, hypothetical, illusionary or misconceived. As I understand the defendant's submission, the principal matter advanced in support of that contention is that it was not until the swearing of Mr Hodgkinson's affidavit in response to receipt of the statutory demand that the plaintiff complained that the defendant had breached its obligation under cl 2.1(a) of the deed of settlement. However, the real question is whether there is a serious question to be tried that the defendant was either in breach of an obligation under the lease or in breach of cl 2.1(a) of the deed of settlement and, if so, whether there has been a sufficient particularisation of the quantum of the offsetting claim. 27 So far as the latter question is concerned, in MacLeay Nominees Pty Limited v Belle Property East Pty Limited [2001] NSWSC 743, Palmer J said that for an offsetting claim to be genuine it must be advanced in good faith and in this context, 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. To establish a genuine claim for unliquidated damages, it is incumbent on the plaintiff to adduce evidence to show the basis upon which the loss is said to arise and how the loss is calculated. His Honour said that if such evidence were lacking the court could not find that there was a genuine offsetting claim for the purpose of s 459H. 28 In Elm Financial Services v MacDougal [2004] NSWSC 560 Barrett J said (at [19]) that it is not necessary that the party seeking to have the statutory demand set aside be able to particularise the amount of the offsetting claim to the last dollar and cent. It is sufficient, his Honour said, for there to be a plausible and coherent basis for asserting the claim to a sum which, despite elements of uncertainty can be seen, in any event, to be greater than the amount of the debt the subject of the statutory demand. 29 The fact that the deed of settlement recited that the plaintiff had made a claim in the Victorian Civil and Administrative Tribunal in relation to the repair of air-conditioning units and, by the deed, the defendant agreed to carry out the air-conditioning works at its own cost, demonstrates that there is a serious question to be tried that the defendant was in breach of the lease in relation to non-repair of the air conditioning system on level two. 30 The evidence on this application is that the defendant did not perform the work of repairing or replacing the air-conditioning system on level two before 31 January 2009, but rather, engaged a contractor to carry out that work, which the contractor attempted to do in April 2009. The asserted claim to damages, which is the foundation of the first offsetting claim, is for damages said to be suffered in respect of the summer months of January, February and March in the years 2007, 2008 and 2009. 31 I think there is a serious question to be tried as to whether the defendant was in breach of its obligation, both under the lease and under cl 2.1(a) of the deed of settlement, at least up to April 2009. It may be, and I express no concluded view on this, that the plaintiff would not be entitled to make a claim in respect of the defendant's not having replaced the air-conditioning system after April 2009 because it may be said that the plaintiff prevented the defendant from having such works carried out. But, if that be so, it does not follow that that is a ground for resisting the plaintiff's claim for damages which accrued before that time. 32 There is then a question as to whether any claim for damages for breach of lease, that is to say any claim for damages in respect of the months of January, February and March 2007 and 2008, are barred by the deed of settlement. I think it is an arguable construction of cl 7.1 that the release by the plaintiff of the defendant applies only if the defendant has complied with its obligation under the deed, including the timely performance of its obligation under cl 2.1(a). In other words, I think it arguable that the defendant would not be entitled to rely upon the deed as an answer to a claim for damages which arose before the deed. 33 So far as the quantification of the claim is concerned, Mr Hodgkinson has set out the basis upon which damages are said to arise and has set out the basis for the calculation. Prima facie, the damages would not be the amount of rent and outgoings payable by the plaintiff in respect of its occupation of level two for the months of January, February and March in any year, but rather, the loss of income arising from what is said to be the plaintiff's inability to use that level as a restaurant and bar. But, the plaintiff would be entitled to call in aid the presumption that damages for loss of profit would be at least equal to the outgoings, including rent, which it paid in respect of the premises which it says it was unable to use for their intended purposes. (See Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64.) 34 Accordingly, I consider that the plaintiff has demonstrated the existence of an offsetting claim in an amount which exceeds the amount claimed in the statutory demand. It is unnecessary to decide whether the plaintiff has a second offsetting claim. I will mention it briefly. 35 The plaintiff says that in June 2009 the Owners Corporation struck a special levy because the defendant had failed to pay amounts it owed to the Owners Corporation. The levy on the plaintiff was $22,763.50. The plaintiff says that it was forced to pay the Owners Corporation fees which it had already paid to the defendant and which the defendant failed to remit to the Owners Corporation. The plaintiff did not specify what fees it paid to the defendant or when it made such payments. 36 The plaintiff also says that when it executed the lease agreements it advanced $10,000 to the defendant on the basis that those funds would be remitted by the defendant to the Owners Corporation. However, the plaintiff did not say that those moneys were not remitted. 37 If it had been necessary to consider this offsetting claim, the plaintiff would face considerable difficulties in showing that it had sufficiently particularised this claim within the principles discussed in McLeay Nominees Pty Limited v Belle Property East Pty Limited and Elm Financial Services v MacDougal. However, on the basis of the first offsetting claim, I consider that the statutory demand must be set aside. 38 For these reasons, I order that the creditor's statutory demand dated 23 March 2010 served on the plaintiff by the defendant be set aside.

[The defendant asked his Honour to re-visit his judgment and addressed thereon.] 39 Mr Rice, who appears for the defendant, has submitted that I ought to reconsider my reasons because he says that the facts upon which I have found there to be a genuine offsetting claim are wrong. In particular, he says that the plaintiff has used a second level as a restaurant and bar and thus could not have suffered the financial loss which Mr Hodgkinson claims in paragraph 17 of his affidavit. 40 In para [21] of my reasons above I have set out the text of paragraph 17 of Mr Hodgkinson's affidavit. 41 Mr Rice swore two affidavits in the proceedings. In his first affidavit of 19 May 2010 he referred to paragraph 17 of Mr Hodgkinson's affidavit. He did not take issue with the facts set out in paragraph 17, but referred to the deed of settlement and observed that that deed settled any issue up to 22 December 2008. He said that rental outgoings pursuant to the lease for January, February and March 2009 were approximately $21,000. 42 As I said earlier in my reasons, it is not for the court to attempt to resolve the merits of the dispute, but to determine whether there is a genuine dispute. I proceed on the basis of facts sworn to by Mr Hodgkinson which, for the reasons I have given, raise such a genuine claim. 43 So far as the question of costs are concerned, Mr Rice submitted that there should be an order that the parties pay their own costs because, he says, the defendant has been put to great expense and has suffered loss as a result of repeated breaches of the lease by the plaintiff. 44 Pursuant to r 42.1 of the Uniform Civil Procedure Rules, prima facie costs follow the event. 45 There is authority that a party serving a statutory demand who is met with an application for the demand to be set aside should give close consideration to the applicable principles under ss 459G and 459H at the risk of an order for indemnity costs. (See Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1998) 16 ACLC 529 at 536.) There, Santow J said: " ... the result yet again affirms the basic principle, essentially preserved in the amendments to the Corporations Law comprising s459G and s459H, that as a matter of discretion a winding up order will not be made on a debt which is genuinely disputed ... But what needs to be said, with some emphasis, is this. When regard is had to the results in favour of the Plaintiff seeking to set aside the statutory notice, insufficient appreciation is evidently being paid to that basic principle. ... Sooner or later, courts will have to consider whether indemnity costs should be awarded against the unsuccessful user of a statutory notice to force payment of a genuinely contested debt, simply because those taking out such statutory demands are disregarding that basic principle. Mini-trials of such disputes simply add to costs, more especially as the relevant tests do not ordinarily permit more than a relatively superficial probing. " 46 In F Assaf, Statutory Demands: Law and Practice (2008) LexisNexis Butterworths, the learned author says his Honour's comments appear to have gone unheeded by creditors, there being literally hundreds of cases where the demand has been set aside on the basis that there has been a genuine dispute (at [8.11]). 47 Indemnity costs are not sought in this case. 48 I could not say that costs should not follow the event for the reasons advanced by Mr Rice without deciding a question about which I have found there to be a genuine dispute. 49 Statutory demands are not a vehicle for resolving such disputes. I order that the defendant pay the plaintiff's costs.

08/11/2010 - Typos in authorities "McLean" replaced by "MacLeay"; and "McDougal" replaced by "MacDougal" - Paragraph(s) 27, 28 and 37

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