New South Wales Supreme Court Infact v Kyle [2005] NSWSC 821 CITATION : This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 12/08/2005 JUDGMENT DATE : 16 August 2005 JURISDICTION : Equity Division JUDGMENT OF : Associate Justice Macready at 1 DECISION : Paragraphs 31 CATCHWORDS : Corporations Law. Application under s 459G of the Corporations Act to set aside a statutory demand. - Demand set aside. No matter of principle. PARTIES : Infact Consulting Pty Limited v Kyle House Pty Limited FILE NUMBER(S) : SC 2836 of 2005 COUNSEL : Mr R. Parsons for defendant Mr D. Knaggs for plaintiff SOLICITORS : Norbert Lipton & Co for defendant LOWER COURT JURISDICTION : - 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION ASSOCIATE JUSTICE MACREADY TUESDAY 16 AUGUST 2005 2836/05 - INFACT CONSULTING PTY LIMITED v KYLE HOUSE PTY LIMITED JUDGMENT 1 HIS HONOUR: This is an application to set aside the statutory demand under s 459G of the Corporations Act. The demand was dated 18 April 2005 and claimed an amount of $7902.54 being: "Amount payable pursuant to terms of settlement dated 8 February 2005 filed in the Local Court (Civil Claims) proceeding number 3300/04." 2 As is apparent, there was a settlement in the Local Court proceedings. Those proceedings were by the defendant lessor against the plaintiff lessee to recover outstanding amounts under the lease. 3 The defendant vacated the premises on 31 October 2003. The amount of arrears was the subject of the litigation in the Local Court. The terms of settlement which they reached were as follows: "1. Statement of claim dismissed. 2. Cross-claim dismissed. 3. No order as to costs. 4. Note the agreement: (a) The plaintiff will within fourteen days make available to the Defendant or his agent all documents called for in the Defendant's Notice to Produce dated 30 January 2005 for the period 1 January 2003 to 31 October 2003 ('the period'). (b) Subject to clause 4(c) hereof, within fourteen days of receipt of a Reconciliation Statement by the Defendant for the period, the Defendant will pay to the Plaintiff's solicitor $8,000 plus or minus the debit or credit shown in the Reconciliation Statement. (c) In the event that the said debit or credit is disputed by the Defendant, the dispute shall be referred to an accountant appointed by the President of the Australian Institute of Chartered Accountants (NSW) whose determination shall be final and conclusive. (d) In the event of a referral as provided in clause 4(c) hereof, the Defendant will pay to the Plaintiff's solicitor:- (i) within fourteen days of receipt of the Reconciliation Statement, the sum of $5,000 to be held in trust pending the determination of the dispute; (ii) the sum of $3,000 plus or minus any debit or credit as determined pursuant to 4(c) hereof within seven days of such determination, or the Plaintiff will pay the Defendant's solicitor the amount of any balance in favour of the Defendant after crediting the sum of $3,000 due by the Defendant to the Plaintiff." 4 As is apparent from these terms, there was the resolution of the dispute and the litigation which resulted in a further agreement between the parties. The debt claimed in the demand is based on the agreement in para 4 and is predicated upon the reconciliation statement referred to in para 4(b) showing a credit in favour of the plaintiff in the sum of $97.46. The evidence before me establishes an appropriate reconciliation statement was served within time limited under cl 4(b) of the parties' agreement. 5 The plaintiff submits: (1) There is a genuine dispute as to whether or not there was compliance with cl 4(a) of the agreement so as to bring into play the liability to make payment under cl 4(b); (2) It has an offsetting claim against the defendant for overcharged outgoings under the lease for the period of the last four years of the lease. 6 I will deal with each in turn. 7 I have had the benefit of a number of submissions in respect of the principles to be applied. I think the most useful summation of what is a genuine dispute is that given by McLelland CJ in Eq in Eyota Pty Limited v Hanave Pty Limited (1994) 12 ACLC 669. At 761 his Honour made the following comments: "It is, however, necessary to consider the meaning of the expression 'genuine dispute' where it occurs in s 459H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the 'serious question to be tried' criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be' not having 'sufficient prima facie plausibility to merit further investigation as to (its) truth' (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341), or 'a patently feeble legal argument, or an assertion of facts unsupported by evidence' (cf South Australia v Wall (1980) 24 SASR 189 at 194). But it does mean that, except in such an extreme case, a Court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments (at ACLC 1066; ACSR 366-7), Hayne J said, after referring to the state of the law prior to the enactment of Division 3 of Part 5.4 of the Corporations Law , and to the terms of Division 3: 'These matters, taken in combination, suggest that at least in most cases, it is not expected that the Court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.' In Re Morris Catering (Australia) Pty Limited (1993) 11 ACLC 919 at 922; (1993) 11 ACSR 601 at 605 Thomas J said: 'There is little doubt that Division 3...prescribes a formula that requires the Court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the Court will examine the merits or settle the dispute. The specified limits of the Court's examination are the ascertainment of whether there is a "genuine dispute" and whether there is a "genuine claim". It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the Court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another. The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).' I respectfully agree with those statements." 8 The genuine dispute has as its starting point the fact that the plaintiff in the Local Court proceedings did not make available within fourteen days the records to be produced under cl 4(a) of the agreement. There was, however, an inspection on 22 March 2005. 9 The first point to observe is that there is no provision that time is of the essence in respect of that agreement but in any event in a letter of 8 March 2005 the lessee's solicitor referred to difficulties experienced by both parties in respect of an appropriate appointment for inspection. He went on to say: "In order to allow time for the inspection of the documents, I confirm that the Plaintiff agrees to extend the time to 23 March 2005 under Item 4(b) of the Agreement noted in the Orders." 10 Mr Knaggs, the solicitor for the lessee, who had been representing him in the proceedings and the inspection replied on 18 March in these terms: "I confirm your letter of 8 March and ask that you ensure that your client is aware that pursuant to the Notice to Produce we need to inspect, amongst other things; All bank statements including the statements and reconciliations for the Sinking Fund; Outgoings recoverable actual reports, and their reconciliations with Detailed Expenses; Reimbursements evidence (invoices et cetera); Auditors' statements; Tenant Account statements; Cheque butts. Please confirm their availability." 11 Plainly there was agreement to extend time notwithstanding Mr Hart of the lessee suggested that his company had not agreed to the extension. Such a matter would be within the ostensible authority of Mr Knaggs as the company's solicitor for the purposes of the negotiation of this settlement and the implementation of its details. I note that both Mr Hart and Mr Knaggs attended for inspection on 22 March 2005 and made no complaint about the extension. 12 The property manager of the lessor gave the following evidence: "5. Pursuant to the Terms of Settlement, on 22 February 2005, I sent by facsimile to Tim Hart, a director of Infact, a copy of a letter and accompanying documents as the Reconciliation Statement pursuant to clause 4(b) of the Terms of Settlement. I also on that day mailed a copy of the said letter and documents to Infact's solicitor, Douglas Knaggs. A copy of the letter and documents are annexed and collectively marked 'A'. 6. The said Reconciliation Statement was prepared by me. It accurately set out the actual outgoings incurred in respect of the Building for the year ending 31 December 2003 as recorded in Kyle House's accounts. 7. Subsequently, Mr Knaggs phoned my office to arrange an appointment to inspect documents I was to make available pursuant to the Terms of Settlement. For various reasons, mainly to do with my unavailability, an appointment to inspect the documents was arranged to take place on 22 March 2005. 8. On that day, Mr Knaggs and Mr Hart attended at my office at Level 1, 83 York Street, Sydney. I had produced Infact's 2003 Statements, Kyle House's bank statements, cheque butts, invoices, receipts and reports for the period 1 January 2003 to 31 December 2003 for them to inspect. Those documents provided information which enabled Infact's representatives to verify the accuracy of the Reconciliation Statement. 9. While in my office, Tim Hart said words to the effect: 'We also want to see statements sent to other tenants and invoices and other documents relating to cleaning and outgoings going back to when our lease first commenced.' 10. I was concerned with the fact that Mr Hart and Mr Knaggs seemed to be wanted to go over matters that occurred prior to 1 January 2003 and that were no longer in issue. In their presence, I then telephoned Kyle House's solicitor, John Townsend and spoke to him. I said: 'John, Tim Hart and Mr Knaggs are here to inspect the documents but they want access to all the tenants' statements and all the records going back to the beginning of their lease.' Mr Townsend told me something and I then said to him 'You'd better tell them' and I handed the phone to Mr Knaggs. 11. After Mr Knaggs spoke to Mr Townsend he said to Mr Hart words to the effect: 'John Townsend says he we're not to get any documents prior to January 2003. I have to say that I didn't formally request all the documents you're looking for.' Mr Hart then said words to the effect: 'Well, if they're not in a position to give us all the documents, there's no point going on. We'll take the matter up with Mr Townsend.' I said: 'I'm instructed not to make any other documents available.' Mr Hart and Mr Knaggs then left my office. 12. After that visit by Mr Hart and Mr Knaggs I heard nothing further from either of them or from anyone else on Infact's behalf." 13 The latter part of the evidence goes to the question of the offsetting claim, but of importance for these purposes is para 8 which demonstrates satisfaction of the condition precedent (if it be one) in cl 4(a). There was no evidence given by the lessee that the relevant documents from 1 January 2003 to 31 October 2003 were not produced and indeed such evidence could not have been given because Mr Knaggs and Mr Hart did not stay to inspect the relevant documentation. 14 In those circumstances there was compliance with cl 4(a) of the terms of settlement. 15 The lessee did not pay the amount required under cl 4(b) and did not within that time indicate any dispute or refer it for arbitration under cl 4(c). What happened was that the lessor served a statutory demand on 18 April 2005. Belatedly, on 25 May 2005 the lessor's solicitor sought the appointment of an arbitrator from the Institute. The lessor did not join in and accordingly the arbitration did not proceed. 16 Importantly, the lessee did not comply with the provisions of cl 4(d) and make the required payments. 17 Because of the link up in the payment required under cl 4(d), namely, the "referral", it would seem clear that the referral was required to be within a period of fourteen days as referred to in cl 4(b). Failing such referral in that time the amount shown in the reconciliation statement became due under cl 4(b). 18 In these circumstances I do not see that there is any genuine dispute on the grounds advanced. 19 I turn to the offsetting claim advanced by the plaintiff. This is based upon a claim that there has been an overcharging of outgoings during the latter years of the lease. There is evidence of the plaintiff that this overcharging may have amounted to $17,803.73 and after other adjustments it claimed that the lessor owed it $10,711.37. 20 The defendant lessor's position on this aspect is that the whole question of what was owing under the lease was resolved in the Local Court proceedings and in the compromise which the parties reached, the terms of which I have set out above. 21 The proceedings were commenced by the lessor after the premises were vacated on 31 October 2003. In the statement of claim the claim was expressed in these terms: "Balance of unpaid rent and the Defendant's proportion of outgoings and cleaning charges plus GST due under Lease dated 3 November 1998 by Swiss Re Life & Health Limited (as Lessor) and the Defendant (as Lessee) ('the Lease') registered number 5525949 in respect of premises being Level 3, Kyle House, 27-31 Macquarie Place, Sydney. The plaintiff purchased the building known as Kyle House at 27-31 Macquarie Place Sydney on 29 June 2000 and thus became the Lessor of the premises which are the subject of the Lease. Interest calculated to 31 January 2004 in respect of the unpaid rent and the Defendant's proportion of outgoings and cleaning charges plus GST referred to above payable by the Defendant pursuant to clause 12(o) of the Lease. Details of the amounts outstanding have been provided to the Defendant and are set out in the Tenant Account Statement a copy of which is annexed and marked 'A'." 22 The claim was denied in the following terms in the defence: "1. This debt is not owed by Infact Consulting Pty Limited. 2. The matter is in relation to a lease between the Plaintiff and the Defendant for Level 8, Kyle House, Macquarie Place, Sydney and all obligations in regard to the completion of this lease have been met by the Defendant. 3. Due to an invoice unpaid by the Plaintiff a balance of $6877.64 is owed to the Defendant plus interest in the prescribed rate from 31 October 2003." 23 The affidavit verifying the defence explains it, inter alia, in these terms: "4. This matter is in relation to a lease between the Plaintiff and the Defendant for Level 8, Kyle House, Macquarie Place, Sydney. The total rent and outgoings due as at 31 October 2003 according to statements and letters supplied by Pharos Pty Limited who were acting on behalf of the Plaintiff was $34,578.36 and not $40,002.72 as claimed by the Plaintiff. A sum of $1595 of this amount is the matter of a genuine dispute between the parties. 5. Infact Consulting Pty Limited at 31 October 2003 offered to exchange the lease bank guarantee held by the Plaintiff for a bank cheque of $27,486. The Plaintiff refused this offer on this occasion and on a number of other dates after 31 October 2003. No interest is therefore payable on the sum of $27,486 after 31 October 2003. The lease guarantee was subsequently exchanged for the sum of $27,486 on 31 December 2003." 24 There was a cross-claim for some fit out costs but in answering that the following appears in the defence to the cross-claim: "10. During the term of the Lease the Defendant failed to pay on the due dates rent and other moneys owing under the Lease. Rent, outgoings and cleaning charges (including GST) were due on the first day of each month and other moneys were due when invoiced. 11. The arrears had been building up over the term of the Lease. As at 31 October 2003 (when the term of the Lease expired) the amount outstanding by the Defendant to the Plaintiff was $34,578.36 which represented over three months' rent, outgoings, cleaning charges and GST." 25 The hearing was on 8 February 2005 and the defendant served the following notice to produce on the plaintiff: "To The Plaintiff: The Defendant requires you to produce at the hearing on 8 February 2005 or such later date to which the proceedings may be adjourned, the following documents for the purpose of evidence: 1. All statements of outgoings of the premises prepared pursuant to cl 2(b)(ii) of the lease. 2. All reconciliations of outgoings of the premises prepared pursuant to cl 2(b)(iv) of the lease. 3. All statements, bank statements, cheque butts, assessments, invoices, receipts and other records of assessing and charging and payment of all outgoings charged in whole or in part against the defendant as outgoings of the premises." 26 It was unlimited as to time. The documents were produced and the evidence before me is that the parties had these documents going back to the commencement of the lease available during the course of the settlement discussions. 27 Normally in respect of the extent of any res judicata estoppel arising from any signed judgment the Court will examine any evidence to ascertain the matters in dispute, any issue which the parties recognise was the subject of their litigation and was fundamental to the judgment or order will be conclusively determined. 28 In Re South American Mexican Co [1895] 1 Ch 37 at 50 Herschell LJ explained the reason why this is so in these terms: "...a judgment by consent is intended to put a stop to litigation between the parties, just as much as is a judgment which results from the decision of the court after the matter has been fought out to the end. And I think it would be very mischievous if one were not to give a fair and reasonable interpretation to such judgments and were to allow questions that were really involved in the action to be fought over again in a subsequent action." 29 Plainly the questions of outgoings during the lease was part of the issues being litigated during the proceedings and the compromise reached on its face shows the claim for outgoings was resolved on the basis of the mechanism that allowed the parties to dispute the outgoings for the period 1 January 2003 to 31 October 2003. As the claim was for the balance due on determination, the correctness or otherwise of the outgoings in the earlier areas was fundamental to the compromise. 30 In these circumstances there can be no genuine offsetting claim. Any suggestion to the contrary whether by res judicata estoppel or under contract in my view is fanciful. 31 I dismiss the proceedings. (Counsel addressed on the question of costs.) 32 There is an application for costs on an indemnity basis. I think the application was not frivolous. There was a question as to the ostensible authority of the solicitor in relation to the question of the agreement as to extension. So far as the cross-claim is concerned, and although I have used the word "fanciful" in my judgment, I am merely echoing what the authorities say in terms of description of whether it is a genuine offsetting claim. 33 Accordingly, in the circumstances, I think the costs should be on a party and party basis. 34 I extend the period for compliance with the demand to a period of 21 days after today's date. ********** 18/08/2005 - Order omitted. - Paragraph(s) 34 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.