Cudgegong 048 Service Pty Ltd as trustee for Cudgegong 048 Trust v Alpine... [2024] NSWSC 723 | Case summary

Cudgegong 048 Service Pty Ltd as trustee for Cudgegong 048 Trust v Alpine... [2024] NSWSC 723 | Case summary | Zoe

RELEVANT FACTS

On about 10 May 2021, Cudgegong and Alpine entered into a design and construct contract (Contract) for Alpine to carry out town house construction work for Cudgegong at a site in Rouse Hill, New South Wales (Site) for a contract sum of about $39.4 million.
Prior to 25 November 2021, Cudgegong and Alpine had a meeting at which they agreed that Alpine could claim a limited number of advance payments from Cudgegong for materials to carry out works under the Contract despite Alpine not yet having incurred the costs of obtaining those materials.
On about 25 November 2021, Alpine submitted a payment claim to Cudgegong requesting payment for, amongst other things, the supply of materials in the sum of $200,000.03 from its supplier, Royal Home Project Pty Ltd (RHP), in circumstances where Alpine had not yet incurred the cost of obtaining those materials and the materials were not yet incorporated into the work required by the Contract (Payment Claim 7).
On 1 December 2021, Cudgegong received a communication from Alpine which enclosed a letter from RHP raising the issue of a payment of an advance 60% deposit for the supply of wall frames, floor joists and roof trusses.
On 2 December 2021, the request from RHP was reduced to a 30% deposit before supplying any materials to the Site.
On 6 December 2021, Cudgegong agreed to pay Alpine the sum of $200,000.03 (excluding GST) as part of Payment Claim 7 for the specific purpose of Alpine paying RHP a deposit for the framing materials for stages 4, 5 and 6.
On 9 December 2021, Cudgegong issued a progress certificate in response to Payment Claim 7 (Progress Certificate 7) which indicated that Cudgegong would pay Alpine the requested advance payment of $200,000.03 for the supply of timber frames and steel beams by RHP.
On about 9 December 2021, Cudgegong paid Alpine the requested advance payment for Progress Certificate 7.
On 11 January 2022, Alpine submitted another payment claim to Cudgegong in which Alpine requested payment for, amongst other things, the supply of materials in the sum of $919,524.31 in relation to its suppliers, A-Tech Australia Pty Ltd, Topsteel Solutions Pty Ltd and RHP in circumstances where it had not yet incurred the costs of obtaining those materials and those materials had not yet been incorporated in the works required by the Contract (Payment Claim 8).
On 20 January 2022, Cudgegong received a communication from Alpine to which were attached the following letters requesting deposits from its suppliers: 1. a letter from A-Tech dated 20 January 2022 seeking payment of a 30% deposit from Alpine; 2. a letter from Topsteel (undated) seeking payment of a 20% deposit from Alpine; and 3. a letter from RHP dated 20 January 2021 [sic] seeking payment of a 30% deposit from Alpine.
On 24 January 2022, Cudgegong informed Alpine that it agreed to make the requested payment to Alpine for those materials not yet incorporated into the works required by the Contract.
On 25 January 2022, Cudgegong issued a progress certificate in response to Payment Claim 8 which indicated that Cudgegong would pay Alpine, amongst other payments, the requested advance payment of $919,524.31 (Progress Certificate 8).
On about 25 January 2022, Cudgegong paid Alpine the requested advance payment of $919,524.31 for Progress Certificate 8.
Together the two advance payments Cudgegong made to Alpine in respect of Payment Claim 7 and Payment Claim 8 total $1,195,524.32 (excluding GST) (Advance Payments).
In May 2023, Cudgegong discovered that the materials the subject of the Advance Payments were never supplied to the Site, with both RHP and Topsteel having confirmed that they never received any payments from Alpine.
On 4 and 18 May 2023, Cudgegong sent letters of demand to Alpine requiring a refund of the Advance Payments.
On 31 May 2023, the solicitors for Alpine responded to the two letters of demand by refusing to refund the Advance Payments and stating that although $440,000 of the Advance Payments had been used to pay A-Tech, the balance of the Advance Payments was used to pay unrelated suppliers.
On 28 July 2023, Cudgegong commenced these proceedings against Alpine by filing a summons seeking restitution to Cudgegong of an amount of $1,195,524.32 plus GST, or alternatively damages, with an accompanying Technology and Construction List Statement. Cudgegong currently alleges that Alpine received funds from Cudgegong to pay for specific materials in the project at the Site, but did not deliver the materials the subject of the Advance Payments to the Site, and therefore there was a total failure of consideration for the Advance Payments entitling Cudgegong to restitution.
On 19 September 2023, Alpine went into liquidation pursuant to a creditors' voluntary winding up resolution. Mohammad Najjar of Vanguard Insolvency Australia Pty Ltd (Liquidator) was appointed as the liquidator of Alpine. As a result, these proceedings were stayed.
On 14 May 2024, Cudgegong's solicitors wrote to the Liquidator advising that it intended to seek leave to proceed against Alpine and asked to be informed of the Liquidator's attitude to the proposed application.
On 17 May 2024, Cudgegong filed and served on the Liquidator the present application in the form of the notice of motion of that date and the supporting affidavit.
On 30 May 2024, the Liquidator wrote to Cudgegong's solicitors stating that he neither opposes nor consents to the application for leave to proceed.

[3]

LEGAL PRINCIPLES

Section 500(2) of the Corporations Act provides: After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.
In ZOLL Medical Australia, in the matter of Cardiac Defibrillators Australia Pty Ltd (in liq) v Cardiac Defibrillators Australia Pty Ltd (in liq) [2022] FCA 167, Halley J at [25] conveniently summarised the principles from the authorities which are relevant to the exercise of discretion under s 500(2), saying: The principles which are relevant to the exercise of the discretion under s 500(2) may be summarised as follows: (a) the purpose of s 500(2) is to prevent a company's assets being dissipated by unnecessary litigation: Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2018] NSWCA 139 (Seymour Whyte) at [16] (Sackville AJA), citing Re DSHE Holdings Limited (recs and mgrs apptd) (in liq) [2018] NSWSC 82 (DSHE Holdings) at [18] (Black J); Re Gordon Grant and Grant Pty Ltd. [1983] 2 Qd R 314 (Re Grant) at 316 (Campbell CJ, Sheahan J and McPherson J); (b) the power to grant leave is discretionary: Seymour Whyte at [16], citing DSHE Holdings at [18] (Black J); White, Re Mossgreen Pty Ltd (admins apptd) (No 5) [2018] FCA 184 at [21] (Perram J); (c) a plaintiff for leave will be required to show why it should not be left to prove its debt in the winding up: Seymour Whyte at [16], citing DSHE Holdings at [18]; (d) a plaintiff must establish that the claim has a solid foundation and gives rise to a serious question to be tried: Seymour Whyte at [16], citing DSHE Holdings at [18]; (e) factors relevant to the exercise of the court's discretion may include the degree of complexity of legal and factual issues: Seymour Whyte at [16], citing DSHE Holdings at [18]; Zamattia v Jainti Pty Ltd (in liq) (in its capacity as Trustee of the Zambito Trust) [2022] NSWCA 3 (Zamattia) at [8] (Leeming JA). It may also include whether there are complex procedural matters such as discovery or interrogatories involved: Zamattia at [8]; Re Grant at 317; (f) the effects that the proceedings may have on creditors of the company in liquidation are to be taken into account Zamattia at [8]; (g) leave should generally be granted for a proprietary claim which cannot be accommodated within the proof of debt procedure: Chahwan v Euphoric Pty Ltd [2006] NSWSC 1002 at [40] (Barrett J); on appeal Chahwan v Euphoric Pty Ltd (2008) 227 ALR 43; [2008] NSWCA 52 at [8] (Beazley, Tobias and Bell JJ); Oliveri v P M Sulcs & Associates Pty Ltd (in liq) [2012] NSWSC 1311 at [10] (Black J); Richardson v Lo Pilato (liq); Re Trojan Hospitality (ACT) Pty Ltd (in liq) [2014] FCA 888 at [52]-[54] (Foster J); and (h) the Court will normally grant leave as of right where plaintiffs seek to recover their own property from the company because such claims cannot be accommodated within the proof of debt regime. Claims which can only be resolved by court proceedings include rectification, specific performance, injunction and rescission of a contract: Commonwealth v Davis Samuel Pty Ltd (No 5) (2008) 68 ACSR 336; [2008] ACTSC 124 (Davis Samuel) at [34]-[36] (Refshauge J); cited with approval in Palace v RCR O'Donnell Griffin Pty Ltd (in liq) [2021] QCA 137 at [40] (Sofronoff P and Morrison and Bond JJA); QNI Resources Pty Ltd v Park (2015) 116 ACSR 321; [2016] QSC 222 at [49] (Bond J).
The present case has a particular focus on the factor in subparagraph (g) in Cardiac Defibrillators, which is that leave should generally be granted for a proprietary claim which cannot be accommodated within the proof of debt procedure.
In Re Bigdeal Artist Management Pty Ltd (in liq) [2015] NSWSC 936, Black J dealt with an application for leave under s 500(2) of the Corporations Act in circumstances where a plaintiff (SEQ Pty Ltd) involved in a joint venture agreement for an Australian tour by the American magician, David Copperfield, claimed a proprietary interest in certain monies which were to be held by another party (Investec Bank (Australia) Ltd) to the joint venture agreement for the purposes of holding and paying monies to suppliers for the tour. Another party to the joint venture (Bigdeal Artist Management Pty Ltd) went into liquidation and the monies which had been held for the joint venture were then paid to the liquidators of Bigdeal. SEQ commenced proceedings against Bigdeal and Investec to recover the funds paid to the liquidators of Bigdeal on the basis that they were paid from trust monies as volunteers and subject to the trust. Black J granted leave under s 500(2) of the Corporations Act for the claim to be pursued against Bigdeal, stating at [16]: SEQ submits that leave should be granted to it under s 500 of the Corporations Act 2001 (Cth) to pursue these proceedings, because its claim is a proprietary claim. That proposition is straightforward, where the proof of debt procedure does not permit proprietary claims to be advanced or adjudicated, and supports the grant of such leave: Hewlett Packard Australia Pty Ltd v Siltek Holdings Pty Ltd [2005] NSWSC 672 at [7]; Oliveri v PM Sulcs & Associates Pty Ltd (in liq) [2012] NSWSC 1311 at [10]. I am satisfied, for the purposes of the relevant application, that SEQ's claim to a proprietary interest in the relevant monies has a solid foundation and gives rise to a serious dispute, so that a serious question to be tried is established, and that supports the grant of leave: Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 556. Accordingly, leave should be granted to SEQ to bring the relevant proceedings under s 500 of the Corporations Act.

[4]

CONSIDERATION

I am satisfied that in these proceedings Cudgegong would be entitled to claim to have a proprietary interest in the Advance Payments to Alpine on express trust for a specific purpose and that, contrary to the purpose for which those funds would be used, the payments were made by Alpine to certain third parties as volunteers. Cudgegong would be entitled to seek to determine whether it has claims against those third parties who received the funds subject to the trust as volunteers.
As the form of the summons and Technology and Construction List Statement currently stands, that proprietary claim has not been stated against Alpine. Instead, a restitutionary claim has been made for monies had and received based on a total failure of consideration, which has been expressed as a personal claim, not a proprietary one.
As the claim that could be made by Cudgegong on the amendment of the summons and Technology and Construction List Statement is of a proprietary nature, it is not one which can be the subject of adjudication as part of the proof of debt procedure conducted by the Liquidator. I am also satisfied there is a serious dispute as to whether the payments were held by Alpine on trust and whether Cudgegong is entitled to a proprietary remedy for them.
The grant of leave will not dissipate Alpine's assets because Cudgegong proposes as a term of the grant of leave not to be entitled to enforce any judgment or costs order against Alpine. Accordingly, it will not prejudice the interests of the creditors of Alpine but it may in fact benefit them if Cudgegong is able to recover its claims from the subcontractors and not be a creditor of Alpine.
The potential claim against the subcontractors is entirely dependent on Cudgegong first proving its claim against Alpine that the funds were received on trust. It is therefore necessary for Cudgegong to continue the current proceedings and then join as parties in those proceedings the subcontractors who received the funds if and when their identity is known.

Cudgegong 048 Service Pty Ltd as trustee for Cudgegong 048 Trust v Alpine Projects Pty Ltd

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Cases Cited (16)