Repforce International v Master Lease Properties [2003] NSWSC 970

New South Wales Supreme Court

CITATION : Repforce International v Master Lease Properties [2003] NSWSC 970 HEARING DATE(S) : 24 October 2003 JUDGMENT DATE : 24 October 2003 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Statutory demand set aside

CATCHWORDS : CORPORATIONS - winding up - statutory demand - securing or compounding to the reasonable satisfaction of the creditor - CORPORATIONS - winding up - statutory demand - "other reason why the demand should be set aside" - winding up proceedings used as lever for improving creditor's position concerning payment of a disputed debt not itself the subject of the statutory demand LEGISLATION CITED : Corporations Act 2001 (Cth) PARTIES : Repforce International Pty Limited - Plaintiff Master Lease Properties Pty Limited - Defendant FILE NUMBER(S) : SC 4148/03 COUNSEL : B DeBuse - Plaintiff A Brown, solicitor - Defendant SOLICITORS : Lander & Lander - Plaintiff Sorensen & Brown - Defendant

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

CAMPBELL J

FRIDAY 24 OCTOBER 2003

4148/03 REPFORCE INTERNATIONAL PTY LIMITED v MASTER LEASE PROPERTIES PTY LIMITED JUDGMENT – Ex Tempore 1 HIS HONOUR: This is an application to set aside a statutory demand. The application is brought by a company which was the lessee of premises in Chatswood, and relates to a statutory demand served by its former landlord. The lease came to an end on 30 April 2003. 2 There was some correspondence between solicitors for the landlord and the tenant about amounts which were said to have been owing by the tenant at the end of the lease term. The landlord's solicitors, on 22 May 2003, wrote to the tenant's solicitors, making a claim for an amount of some $53,000. It included many different heads of claim. 3 In the course of the correspondence between the solicitors, the tenant's solicitor has made certain admissions. One of those is that the rental for the final month of the lease term, in the sum of $8,772.23, has not been paid. Another is that, if any rent was paid late, there is an obligation to pay interest on it. 4 The statutory demand is one which was served on 15 July 2003. It relates to the sum of $14,803.43, made up of three components. The first component is $8,772.23, for rent for the month of April 2003. The second is an item of $1,631.20, said to be for interest due under the lease in respect of arrears of rent over the entire period of the lease. The lease commenced on 1 May 2000 and arrears are claimed over the period from 1 May 2000 to 8 May 2003. The third head of claim is an amount said to be due for repainting of the premises on termination of the lease, of $4,400. Today, the claim for repainting was not pressed as part of the statutory demand. 5 As well, on the strength of a letter which I will assume, for the purposes of the present application, without deciding, amounts to a concession on the part of the solicitors for the lessee, the claim for interest is reduced to $799.35. Thus, the statutory demand, were it to be modified by deleting the claim for painting and reducing the claim for interest, would be for an amount of around $9,500. 6 There are several bases on which the lessee seeks to set aside the statutory demand even in that amended form. Some of them depend upon the fact that the landlord holds a performance bond which the tenant gave it as security for performance of the tenant's obligations under the lease. That performance bond is one which was required to be given under clause 10.4 of the lease. It was given by a bank, for a sum of $20,000, and is payable to the landlord on demand made by the landlord to the bank. Clause 10.4 of the lease provides that: "At the end of the lease, if the tenant is not indebted or otherwise liable to the landlord for breach of the lease, the landlord will release to the tenant the security deposit, … by returning, or consenting, to the discharge or releasing the bank guarantee, ..." 7 The tenant has been saying for some weeks now that it will pay the rent outstanding, and the interest properly due, if it gets back the bond. The landlord is declining to return the bond, and also declining to call on the bond to obtain payment of the sums which are the subject of the statutory demand. It continues to assert that it has much more extensive claims than those which the tenant concedes are correct and says that it wants to retain the bond as security for those larger claims. 8 In connection with that, the tenant began proceedings in the Local Court, seeking an order for return of the bond or, alternatively, for damages for its face value, namely, $20,000. Those proceedings were, as it happens, begun on the same day that the statutory demand was issued. The landlord has cross-claimed, in the Local Court, for the full amount it says the tenant owes it. 9 The tenant says that, by having provided the landlord with the bond, it has already, within the meaning of section 459E(2)(c) of the Corporations Act 2001, secured or compounded for the amount which is claimed in the statutory demand, to what would have to be the landlord's reasonable satisfaction, given the undoubted ability to pay of the issuing bank, and the fact that the bond exceeds the amount of the statutory demand. I do not accept that that is so. 10 The securing or compounding must, to comply with section 459E(2)(c), be a securing or compounding for the amount in the statutory demand. The bond which has been provided is one which is of an omnibus nature, covering all liabilities, which the tenant might have to the landlord. It was provided before the lease term began. 11 I am satisfied that there are significant disputes between them about the amount, if any, which is owing beyond the rent and any interest properly payable. Further, section 459E(2)(c) contemplates that the securing or compounding occurs after service of the statutory demand. 12 The landlord is justified in saying it is not reasonably satisfied with the bond as a securing or compounding for the debt which is claimed in the statutory demand. 13 I am also, however, satisfied that there is a bona fide dispute about whether anything more is owing than the amount which the tenant admits. 14 The claim in the Local Court for return of the bond or its value is one which could not be regarded as giving rise to a bona fide dispute about the existence of a claim by the tenant against the landlord for $20,000 for damages for detention of bond, which is an offsetting claim greater than the amount of the statutory demand. This is because lessee admits that it has not paid the last month's rent, and owes something for interest on rent paid late. The right to return of the bond under subclause 10.4 of the lease, arises only if the tenant is not indebted to the landlord for breach of the lease, and the tenant admits that it is indebted to the landlord for the rent, and interest. 15 The third basis upon which the tenant seeks to set aside the statutory demand is 459J(1)(b), that the Court can order the demand to be set aside if, "there is some other reason why the demand should be set aside". 16 Here, the existence of the bond provides, in my view, a reason why the demand should be set aside. It is a commonplace that winding up proceedings are not to be used as a lever for gaining payment of a debt concerning which there is a bona fide dispute. Usually that principle is applied where the debt which is disputed is the debt which is the subject of a statutory demand. Here that familiar principle comes to be applied in a different context. As I have said, I assume for the purposes of this judgment that there is no dispute that, as to $9,500 or so, the debt which is the subject of the statutory demand is owing. Even so the statutory demand is being used as a lever for gaining payment of a different debt which is bona fide disputed. 17 What the landlord is seeking to do is to preserve the entirety of the $20,000 payable under the bond, as security for the debts concerning which there is a bona fide dispute, and which are currently the subject of a cross-claim in the Local Court. If the demand were not to be set aside, the landlord would be doing more than collecting, once the demand was complied with, a debt which is clearly due. It would be gaining an advantage, namely, the right to have an assured source of payment for $9,500 more of debt which is disputed, than it would have had if the winding up proceedings had not been brought. It is in this way that the present case involves the winding up proceedings being used as a lever for payment of a debt. 18 It is not an appropriate use of winding up proceedings to seek to gain that sort of commercial advantage. For that reason, I set aside the statutory demand. There is no need to consider another argument of the tenant, concerning an alleged inadequacy in the verifying affidavit. 19 The plaintiff seeks costs. No adequate reason has been presented why that order should not be made. I order the defendant to pay the plaintiff's costs of the proceedings. **********