Acqualounge Manly P/L v Barecall P/L [2005] NSWSC 627 (23 June 2005)

Last Updated: 5 July 2005

NEW SOUTH WALES SUPREME COURT

CITATION: Acqualounge Manly P/L v Barecall P/L [2005] NSWSC 627



CURRENT JURISDICTION:

FILE NUMBER(S): 3591/05

HEARING DATE{S): 22/06/05

JUDGMENT DATE: 23/06/2005

PARTIES:
Acqualounge Manly Pty Limited
v
Barecall Pty Limited

JUDGMENT OF: White J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:
Plaintiff: M Dawson
Defendant: B Rayment QC, A Lo Surdo

SOLICITORS:
Plaintiff: Gibsons Lawyers
Defendant:


CATCHWORDS:
PRACTICE AND PROCEDURE - Interlocutory application for an injunction to restrain the defendant lessor from interfering with the plaintiff lessee's use or occupation of the leased premises - Notice of termination of lease served by leaving at premises early in the morning - Lessee placed in administration later that day - Locks changed by lessor - Serious question to be tried about whether defendant's possession is contrary to s 440C of Corporations Act - Undertaking as to damages offered only by company in administration - Whether legislature intended s 443B to confer on administrator a grace period of 7 days and no further undertaking should be required - Corporations Act s 440C, 441F, 443B - Held that the usual requirement to give an undertaking of some worth had not been displaced - Application refused.

ACTS CITED:
Corporations Act 2001 (Cth)

DECISION:
Application for interlocutory relief refused.


JUDGMENT:


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


WHITE J

Thursday, 23 June 2005


3591/05 Acqualounge Manly Pty Limited v Barecall Pty Limited

JUDGMENT

1 HIS HONOUR: These proceedings concern possession of a property at 42 North Steyne, Manly of which the plaintiff is or was the lessee. The defendant is the owner of the property.

2 The sequence of events which has given rise to the proceedings is, in summary, that the plaintiff, it seems, was in default of payments of rent. The defendant claims that at about 6.30am on Monday 20 June it served a notice of termination of the plaintiff's lease by leaving the notice at the premises. At about 11am on that day, the sole director of the lessee, the plaintiff, resolved that the company be placed under the control of an administrator under Pt 5.3A of the Corporations Act 2001 (Cth). At about midnight on 20 June the defendant changed the locks to the premises. There is an issue as to whether the notice of termination was validly served and when it was served.

3 The plaintiff invokes s 440C of the Corporations Act which provides that:

"during the administration of a company the owner or lessor of property that is used or occupied by or is in possession of the company cannot take possession of the property or otherwise recover it except with the administrator's written consent or with the leave of the Court".

The administrator has not consented to the action which the defendant took in changing the locks and no leave is yet sought by the defendant, pursuant to 440C.

4 However, s 440C is subject to s 441F. It provides that if, before the beginning of the administration of a company, a person entered into possession of property used or occupied by a company, or exercised any other power in relation to such property for the purpose of enforcing the right of the owner or lessor of the property to take possession of the property or otherwise recover it, then nothing in s 440C prevents the person from performing a function or exercising a power in relation to the property. Under s 443B, where, under an agreement made before the administration of a company begins, a company continues to use, or occupy, or to be in possession of property, then the administrator becomes liable for rent or other amounts payable by the company. But he does so only seven days after the administration begins.

5 The plaintiff seeks an interim injunction restraining the defendant and its servants or agents from taking any step to exclude the plaintiff from its use or occupation of the property. It is likely that the final hearing of the plaintiff's application can be arranged for some time during the course of the next week, but the plaintiff seeks an interim injunction in those terms until that hearing.

6 There was no issue in the argument before me that there was a serious question to be tried as to whether the defendant's possession of the property is contrary to s 440C of the Corporations Act. However, in the normal course of events, for the plaintiff to be entitled to an interim injunction on the basis there is such a serious question to be tried, it would have to proffer an adequate undertaking as to damages. The administrators have not agreed to give an undertaking as to damages. The plaintiff company proffered such an undertaking, but there are strong grounds to suspect it is insolvent and an insolvent, undertaking would be worthless. No shareholder or director of the company has proffered an undertaking as to damages.

7 In response to this difficulty, it was ably argued by counsel for the plaintiff that having regard to the regime provided for by Pt 5.3A, no further undertaking as to damages should be required. This was so, it was said, because the legislation provides a regime which is intended to maximize a chance of a company or its business continuing in existence, and for that purpose gives the administrators a very short window of seven days to consider the company's position before they become personally liable for rent. The restraint on an owner of property from occupying or taking possession of its own property once the administrator has been appointed, is intended to achieve that position. To require the company, which Pt 5.3A contemplates may well be insolvent, to procure a worthwhile undertaking as to damages in order to preserve those rights would, it was submitted, undermine the purposes of the legislation.

8 The difficulty with the argument is that Pt 5.3A is not all one way. The defendant would be entitled to take and keep possession of the property if s 441F applies. It was submitted that 441F could not apply, even on the defendant's case, because what was done before the commencement of the administration did not amount to its entering into possession of property, or exercising a power in relation to the property, for the purpose of enforcing its right to take possession of it or otherwise recover it. Reference was made to a number of decisions including that of Brownie AJ in Telaro Pty Ltd v Burns [2000] NSWSC 26. There, his Honour held that the giving by a lessor of a notice to quit and the commencement of premature proceedings for possession did not amount to the exercise of a power for the purpose of s 441F. His Honour's reasons were given extempore and the reasons for the conclusion expressed in paragraphs 14 and 15 of his Honour's judgment are not developed.

9 This is not a final hearing of the application. Unless I was satisfied that the defendant's claim to rely on s 441F was unarguable, or at least weak, then the ordinary rule by which an undertaking as to damages would be required should apply.

10 There is a line of authority which holds that a lessor can terminate a lease by notice without physical re-entry or instituting proceedings for possession. (See B&M Activities Pty Ltd v Perpetual Trustees Victoria Ltd, (Young J 7 September 1998). (See also the decision of Byrne J in Re Java 452 Pty Ltd (Administrator Appointed); Permanent Trustee Australia Ltd v Stout [1999] VSC 252; (1999) 32 ACSR 507 at 511). Whether on the proper construction of the notice it should be regarded as a notice demanding possession, or otherwise as a notice which exercises a power in relation to the subject property, is a matter which I consider to be fairly arguable on a final hearing.

11 Accordingly, I do not consider the matters advanced by counsel for the plaintiff as sufficient to displace the usual requirement that the plaintiff proffer an undertaking as to damages of some worth. I do not consider the undertaking proffered by the plaintiff is sufficient for that purpose and, accordingly, I refuse the application for interlocutory relief.

12 The parties should attend on the Chief Judge in chambers as I understand his Honour is likely to fix a hearing date for next week. Costs will be costs in the proceedings.


******

LAST UPDATED: 29/06/2005