Black Hole Enterprises Pty Ltd v Classic Heights Pty Ltd [1995] FCA 467

IN THE FEDERAL COURT OF AUSTRALIA VICTORIAN DISTRICT REGISTRY GENERAL DIVISION No VG 3415 of 1994

BETWEEN: BLACK HOLE ENTERPRISES PTY LTD Applicant -and- CLASSIC HEIGHTS PTY LTD Respondent Coram: Olney J Place: Melbourne Date: 26 June 1995 MINUTE OF ORDER THE COURT ORDERS THAT the application be dismissed with costs. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA VICTORIAN DISTRICT REGISTRY GENERAL DIVISION No VG 3415 of 1994

BETWEEN: BLACK HOLE ENTERPRISES PTY LTD Applicant -and- CLASSIC HEIGHTS PTY LTD Respondent Coram: Olney J Place: Melbourne Date: 26 June 1995 REASONS FOR JUDGMENT On 5 September 1994 the respondent's then solicitors caused to be posted to the registered office of the applicant a Creditor's Statutory Demand for Payment of Debt (the demand) whereby the respondent required payment within 21 days of the sum of $26,894.70 said to be due and payable by the applicant pursuant to an order made by Master Bruce in the Supreme Court of Victoria on 31 August 1994 in proceeding 5692 of 1994. The applicant admits service of the demand and admits that the sum claimed is due and payable. It has however made application pursuant to s 459G of the Corporations Law for an order that the demand be set aside on the grounds first that it has an off-setting claim against the respondent and second, that there are other reasons why the statutory demand should be set aside. The scheme of Divisions 2 and 3 of part 5.4 of the Corporations Law is now well known. It is unnecessary to recite the relevant provisions in detail. Upon an application to set aside a statutory demand the Court must determine whether it is satisfied that there is a genuine dispute between the company (the applicant) and the respondent about the existence or amount of a debt to which the demand relates and/or that the company has an offsetting claim (s 459H (1)). Having done that, the Court must then calculate the "substantiated amount" of the demand by subtracting from the "admitted amount" the amount of any "offsetting claim" (s 459H(2)) whereupon it may, depending on the circumstances, either set aside the statutory demand (s 459H(3)), vary the amount of the demand (s 459H(4)) or dismiss the application (s 459L). The Court may also set aside a 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 (s 459J(1)(a)) or there is some other reason why the demand should be set aside (s 459J(1)(b)). The provisions of s 459H have effect subject to s 459J (s 459H(6)). In this case it is not said that there is any defect in the demand nor is there any dispute between the applicant and the respondent about the existence or amount of the debt to which the demand relates. Accordingly, for the purpose of the statutory formula the admitted amount (as that term is defined) is $26,894.70. The term "offsetting claim" is defined in s 459H(5) to mean: 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). The concept of an offsetting claim does not necessarily entail the existence of a debt due and payable. An unliquidated claim would comfortably fit within the definition of the term, but it is a necessary requirement that for the purpose of the formula expressed in s 459H(2) that the Court be able to express in monetary terms (albeit merely an estimate) the value of the claim. Indeed, an estimate based upon the evidence that the value of the offsetting claim would be likely to exceed the admitted amount of the claim would probably be sufficient. But there must be some credible basis in the evidence to justify any such valuation of the offsetting claim. The applicant's principle assertion is that it has an "offsetting claim" of an amount which exceeds the admitted amount and thus the substantiated amount is a negative sum, and therefore, it being less than the statutory minimum the Court must set the demand aside (s 459H(3)). The facts of this case, as they appear from the affidavit evidence, are as follows: In April 1992 when it was one of two joint registered proprietors of certain land in Melbourne situate at and known as 164-170 Flinders Street (the land) the respondent and the other joint proprietor leased the second floor of the building erected on the land to the applicant for a term of 7 years with two successive options of renewal for further terms of 7 years each (the second floor lease). In July 1992 the same proprietors entered into an agreement to lease the third floor of the building to the applicant for a similar term (the third floor lease). The second and third floors of the building are hereafter collectively referred to as the premises. The premises were used by the applicant to conduct thereon the business of a night club. The respondent is now the sole registered proprietor of the land and is the successor in title to the original lessors. In late 1992 disputes arose between the parties concerning the leases and the premises. The respondent claimed that the applicant was in arrear with the rent, a claim which the applicant denied. In January 1993 the applicant drew the respondent's attention to what was said to be serious short comings in the maintenance of the premises. The dispute as to the rent is said (by the applicant) to have been resolved by an agreement reached between the parties in April 1993 to adjust the amount payable by the applicant to a weekly sum of $1200 to cover both rent and outgoings. The applicant says further that on 17 May 1993 the respondent's then solicitor wrote to the applicant confirming the agreement under which the applicant was paying $1200 per week. The full text of that letter is set out below: 17th MAY, 1993 MESSRS. TIM STAMMERS & ANTHONY PATTON BLACK HOLE ENTERPRISES PTY LTD 2ND FLOOR 164 FLINDERS STREET MELBOURNE VIC 3000 Dear Sirs, WITHOUT PREJUDICE RE: CLASSIC HEIGHTS PTY LTD I refer to our numerous discussions regarding the Temple Club and confirm that your lease of the 2nd floor and your monthly tenancy of the 3rd floor have been terminated. You have been granted occupation of both floors on the basis that you pay the amount of $1,200 by cash or bank cheque by the close of business every Wednesday as a weekly rent. To date payments have been made on Fridays. This is not acceptable. Secondly, you have been granted a week to week tenancy on the basis that you come up with a proposal for repayment of all arrears. No such proposal has yet been made. Accordingly I must ask that you provide me with a repayment proposal immediately. I remind you that the landlords right to rent under the lease until the expiration of the term of the lease is not affected by the termination of the lease and therefore your indebtedness continues to increase. Yours faithfully, (Sgd) GEORGE KONSTAS Subsequent correspondence indicates that the applicant continued to dispute that the respondent had been entitled to terminate the leases whereas the respondent's solicitor continued to assert that the leases had been properly terminated and that the applicant's continued occupation of the premises was as a weekly tenant. The applicant paid rent at the rate of $1,200 per week for several weeks from the week commencing on 28 April 1993 but the respondent's agent refused to accept further payments tendered on 15 and 21 July 1993. On 11 August 1993 the respondent served 2 notices pursuant to s 146 of the Property Law Act 1958. One notice referred to the second floor premises; the other referred to the third floor premises. Each notice required the applicant to remedy various defaults particularised in the notices within 14 days and gave notice that in default it was the respondent's intention to re-enter the premises. On 30 August 1993 the respondent re-entered the premises and has since excluded the applicant therefrom. The applicant lodged caveats at the Land Titles Office on 2 December 1993 claiming a leasehold estate in each of the second floor and the third floor. On 14 December 1993 the respondent made application to the Registrar of Titles pursuant to s 89A(1) of the Transfer of Land Act for the issuing of notices pursuant to s 89A(3) in respect of each caveat advising the applicant that the relevant caveat would lapse unless within the specified time the Registrar was notified that proceedings had been commenced in a court of competent jurisdiction to substantiate the claims made in the caveat. The Registrar gave notice pursuant to s 89A(3) on 19 April 1993 requiring that advice as to the commencement of proceedings be given by 27 May 1994. On 21 April 1994 the respondent commenced proceedings in the Supreme Court of Victoria (the respondent's Supreme Court action) seeking removal of the caveats. On 29 April 1994 the applicant commenced proceedings in the Supreme Court of Victoria (the applicant's Supreme Court action) seeking declarations that it was entitled to a leasehold estate in both the second floor and the third floor and that its claims as caveator in relation to the two caveats had been substantiated. An order was made in the respondent's Supreme Court action that certain preliminary questions be tried before the trial of the proceeding. The questions related to whether or not the applicant had a caveatable interest in the premises as claimed in the caveats. The preliminary questions were heard by Batt J on 8, 9 and 10 June 1994 and his Honour's decision was delivered on 27 June 1994. The Court found that the applicant did not have a caveatable interest in the premises and directed the Registrar of Titles to forthwith do all things necessary to remove the caveats. The Court also ordered that the applicant pay the respondent's costs of the proceeding. The costs in the respondent's Supreme Court action were taxed on 31 August 1994 and allowed in the sum of $26,894.70. The demand in this proceeding relates to the amount of such costs. There is no evidence before the Court as to what stage the applicant's Supreme Court action has reached but it is my understanding that the matter has not progressed very far due to a number of factors including the hearing of the respondent's Supreme Court action, a demand by the respondent that the applicant provide security for costs and the desire to have matters raised in this application determined. The foregoing chronology omits reference to a number of facts. First, it is common cause that the demand to which this proceeding relates is the third statutory demand made by the respondent against the applicant. The first demand was made on 12 August 1993, on the day after the respondent served notices under the Property Law Act and the second was made on 31 March 1994, in the period between the respondent's request to the Registrar of Titles pursuant to s 89A(1) of the Transfer Land Act and the Registrar giving notice to the applicant pursuant to s 89A(3). In each of the first and second statutory demands the respondent claimed a debt of $26,582.43 for rent and outgoings due and payable as at 30 August 1993 in relation to lease agreements between the applicant and the respondent. The respondent did not pursue the first statutory demand made on 12 August 1993. It does not appear that any application was made to set it aside but as no winding up application was made within the relevant period after service of the demand, it was of no practical effect. The applicant did make an application to set aside the second statutory demand. The application was filed on 21 April 1994, on the same day as the respondent's Supreme Court action was commenced. On 24 May 1994 an order was made by consent setting aside the statutory demand. A second matter which is not referred to above in any detail is that throughout its dealings with the respondent in the period since the respondent first alleged that the rent for the premises was in arrear, the applicant has consistently denied that to be so and has at all times since being evicted from the premises on 30 August 1993 asserted that it has a leasehold interest in the premises. There is one other matter which calls for comment. There is evidence which suggests that as early as July 1993 the respondent was contemplating the sale of the premises and on 30 September 1993 an application was made by another company for a planning permit to allow the erection of a further floor to the existing building and to use it for 29 residential units and shops. The evidence as to what occurred since the applicant's eviction is not very precise but it does appear that the property has been sold and converted to an alternative use. The applicant relies upon three affidavits of James Gregory Eden, (Eden) a director of the applicant, affirmed respectively on 21 September 1994, 4 November 1994 and 25 January 1995. Put briefly, and I hope fairly, it is the applicant's case that -