Moving Tactics Pty Ltd v IPMG Digital Pty Ltd

Judgment 1HIS HONOUR : This is an application under s 459G of the Corporations Act 2001 (Cth) for an order to set aside a statutory demand. The plaintiff relies upon an offsetting claim and contends that the demand should be varied pursuant to s 459H. 2The defendant that served the statutory demand is the plaintiff's lessor under a sublease. By a demand dated 8 October 2010, it required the plaintiff to pay a debt of $49,218.75 due for rent as sublessee of premises in Macquarie Street, Sydney for the months of August, September and October 2010. There is no issue that that amount is owed. 3However, the defendant asserts that it has a genuine claim by way of counter-claim or cross-demand. If so, it is irrelevant whether or not the claim arises out of the same transaction, or would be capable of being set off against the debt the subject of the demand. There was no issue about the standard which the plaintiff has to satisfy to establish that it has a genuine claim (see Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743; and Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [19]). 4The plaintiff's offsetting claim is for legal costs of $16,275.18, and lost revenue of $17,600. The plaintiff contends that it suffered such losses as a result of the defendant's misleading and deceptive conduct in connection with the entry into the sublease. 5The plaintiff is in the business of erecting, managing and promoting digital signage. In October 2008, Chesterton International, who are real estate agents who acted on behalf of the defendant, offered to sublet the Macquarie Street premises to the plaintiff. At that time, the plaintiff had offices in Hunter Street, Sydney. An offer for sublease was sent on 26 November 2008 and the plaintiff took possession of the Macquarie Street premises in December 2008. At that time the sublease had not been signed. The plaintiff says that it assumed, and was entitled to assume, that the defendant had obtained the approval of the head lessor to the grant of the sublease. The plaintiff also says it discussed with the agent its proposal to grant further subleases of the premises which it would occupy, and that it was entitled to assume, as it did, that the defendant had obtained the head lessor's approval to those subleases. 6In any event, the head lessor's approval was obtained. But it was not obtained until about December 2009. The plaintiff complains that it had to embark on a long and difficult negotiation involving the sublessor and also the head lessor for the obtaining of consent, and that it incurred legal costs of $16,275.18 in doing so. 7Mr McIntosh, the plaintiff's managing director, also says that had he not been occupied in dealing with the issue of obtaining the head lessor's consent, he would have been able to undertake consulting work for clients of the plaintiff and this would have generated income of $17,600. 8The claim that the sublessor was guilty of misleading and deceptive conduct by silence in not disclosing that it had not already procured the head lessor's consent to the sublease satisfies the undemanding test for establishing a genuine claim. Ultimately this was not seriously disputed by the defendant. However, the defendant contended that the plaintiff had not established that it had a genuine claim that legal costs had been caused by that alleged misleading and deceptive conduct. 9The legal costs claimed are itemised in bills of costs from which it appears that the costs covered work not only in relation to negotiations with the head lessor, but in relation to other matters concerned with the sublease, and with the sub-subleases that the plaintiff was to enter into with its sublessees. There was no dissection of the claim from which it could be said how much of the claim related to the negotiation for the landlord's consent. In other words, there was no dissection from which it could be said how much lesser the legal costs would have been had the landlord's consent in fact been obtained by the defendant. 10However, counsel for the plaintiff said that this is the wrong way to look at things and that the measure of damages would be the tort measure of damages, rather than the expectation measure of damages. 11The question he says, is whether those costs would not have been incurred had the misleading conduct not been engaged in. The plaintiff's evidence is that in that event, it would not have moved premises. Accordingly, counsel says that none of the legal costs would have been incurred and it is not incumbent on him to establish that the cost to and the value of the plaintiff's former premises were at least, as valuable to the plaintiff as the premises to which it moved. 12These issues raise some difficult questions of law which are inappropriate to be decided on this application. I think there is enough to establish a genuine claim in respect of the claimed legal costs. 13There is some corroboration that this part of the plaintiff's claim is genuine from the fact that the claim was advanced by the plaintiff from as early as 9 November 2009. 14After demand was made for outstanding rent, the plaintiff responded on 31 August 2010 to the defendant. Mr McIntosh said that he would like to address the matter of additional costs the plaintiff incurred by entering into an agreement to lease the premises despite the defendant's not having gained permission to lease the premises from the landlord. He said, " Due to the above we were forced to do a great deal of additional legal work that would not have been required had your client had permission to enter this lease with us. " He sought $15,000 compensation to cover additional legal costs. The same contention was made in the subsequent letter of 6 September 2010. It was consistent with Mr McIntosh's correspondence of 9 November 2009. 15In none of that correspondence did Mr McIntosh assert that the absence of prior approval by the head lessor to the sublease with the resultant negotiations had caused the plaintiff to suffer a loss of revenue. 16In an affidavit in support of this application, Mr McIntosh made a bare assertion that, had he not been spending time dealing with the issue of obtaining the landlord's consent, he would have been able to undertake consulting work for the plaintiff's clients. He specified his charge-out rate and estimated that on the basis that he had spent 40 hours approximately to deal with the issue concerning the landlord's consent, the plaintiff had lost revenue of $17,600, being 40 hours at $440 per hour. 17The assumption in this reasoning was that there was work available to the plaintiff to be done by Mr McIntosh which he was unable to do because his time was otherwise engaged. 18No facts were given to support that contention. Mr McIntosh did not, for example, give any evidence of anyone approaching the plaintiff for consulting work whose needs could not be attended to because of the demands on Mr McIntosh's time. 19A notice to produce was given to the plaintiff requiring the production of, amongst other things, copies of all invoices issued by the plaintiff for consulting work undertaken by Mr McIntosh in the period between 1 January and 16 December 2009 and a copy of any ledger account kept by the plaintiff recording entries for consulting work undertaken by Mr McIntosh and moneys received in payment for those services between 1 January 2009 and 16 December 2009. No documents falling within those descriptions were produced. 20It is true that the notice to produce was served late. It was served only two days ago. But there was no evidence from the plaintiff that the reason for non-production of documents was that it was too difficult in the time available for the documents to be produced. 21Two invoices for consultancy were produced, but these were dated 10 February 2011. Otherwise, the only document of a financial nature produced was a quotation for monthly payments in relation to the erection or management of digital signage. 22Notwithstanding the undemanding nature of the test for requiring a company to show it has a genuine offsetting claim, I do not think that that test is satisfied in relation to the claim for lost revenue. Subject to hearing counsel as to the precise form of the order to be made, I propose in substance, to order that the creditor's statutory demand dated 8 October 2010 addressed to the plaintiff be varied by substituting for the figure of $49,218.75 the figure of $32,943.57. [Counsel addressed.] 23The defendant seeks an order under s 459F(2)(a)(i) extending the period for compliance with the demand for a period of 21 days, that is, up to 18 March 2011. There is no evidence to support that application. Counsel submitted that the plaintiff is a small business, but that is not a sufficient reason for the extension. The demand was made in October last year, and I see no sufficient reason to alter the time period stipulated for in the Act. I refuse that application. Moreover, there is evidence that on 21 November 2010, the plaintiff paid the sum of $15,343.57 so that the amount required to satisfy the demand as varied is $17,600. There is no evidence the plaintiff would suffer any particular hardship in being required to pay that sum which, on my findings, has been owed now for some months. [Counsel addressed on costs.] 24In my view the correspondence between the solicitors of 4, 5 and 8 November 2010 does not have any significance on the questions of costs. It does not appear to me that either party has bettered the position which it offered, let alone that either party's refusal to accept the proposal of the other was unreasonable. The plaintiff has succeeded on one issue, but has failed on the other. The issues were roughly equal value in dollar terms. This indicates that the appropriate order is that there be no order as to costs, with the intention that each party bear its own costs of the proceedings. [Orders accordingly.]