Easey v Grosvenor Constructions

Corporations Act 2001 (Cth), ss.444B(6), 444D(1), 444E(3) LEGISLATION CITED : Law Reform (Miscellaneous Provisions) Act 1946, s.6

Bernardi v London Partners Australia Pty Ltd [2004] QSC 351 Bistritz v Linkjet Holdings Pty Ltd [2001] WASC 67 Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24 Glaister v Banwell Pty Ltd [2003] WASC 101 Josia Pty Ltd v Horvat Constructions Pty Ltd [2004] NSWSC 1252 CASES CITED : Kinzett v McCourt (1999) 46 NSWLR 32 Meehan v Stockmans Australian Café (Holdings) Pty Ltd (1996) 22 ACSR 123 MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636 Re QMT Constructions Pty Ltd [2000] 1 QdR 284 Wolstenholme v National Express Group Australia (Swanston Trams) Pty Ltd [2003] VSC 476 Worths Pty Ltd v O'Dal [2000] WASCA 120

Barry Easey - Plaintiff PARTIES : Grosvenor Constructions (NSW) Pty Limited - Defendant

SOLICITORS : Bryden's Law Office - Plaintiff

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

3748/05 BARRY EASEY v GROSVENOR CONSTRUCTIONS (NSW) PTY LIMITED JUDGMENT 1 By originating process filed on 30 June 2005, the plaintiff (Mr Easey) seeks leave under s.444E(3) of the Corporations Act 2001 (Cth) to continue certain District Court proceedings against the defendant (which I shall call "Grosvenor"), a company which has executed a deed of company arrangement. 2 In the District Court proceedings, Mr Easey claims damages in respect of personal injuries said to have been suffered by him when he slipped and fell at a shopping centre. The first and second defendants in those proceedings are the shopping centre owners. The third defendant is Grosvenor, which built the shopping centre. Mr Easey alleges against Grosvenor that it was guilty of negligence in the supplying and laying of tiles on the floor of the shopping centre. 3 The District Court proceedings were commenced against Grosvenor by amended statement of claim filed on 31 January 2005. A deed of company arrangement had been executed by Grosvenor on 3 February 2003. Commencement of the proceedings on 31 January 2005 was therefore precluded by s.444E(3) in the absence of the leave of a "Court" within the meaning of the Corporations Act. The present application must therefore be approached as an application nunc pro tunc for leave to commence the proceedings, as well as an application for leave to continue them. 4 The approach to s.444E(3) applications is akin to that taken to applications for leave to proceed against a company in the course of being wound up, rather than the more stringent test applied to applications for leave to proceed against a company in Part 5.3A administration. This was established by Lehane J in Meehan v Stockmans Australian Café (Holdings) Pty Ltd (1996) 22 ACSR 123, a decision which has been followed in subsequent cases: see, for example, Worths Pty Ltd v O'Dal [2000] WASCA 120; Bistritz v Linkjet Holdings Pty Ltd [2001] WASC 67; Glaister v Banwell Pty Ltd [2003] WASC 101; Bernardi v London Partners Australia Pty Ltd [2004] QSC 351. 5 According to that approach, there is a clear case for the grant of leave in this case: there is an insurer in respect of the liability of Grosvenor asserted by Mr Easey; the deed administrators have, by letter dated 10 August 2005 to Mr Easey's solicitors, consented to the grant of leave to proceed; and Mr Easey has, through his solicitor, proffered to the court an undertaking not to seek to enforce any District Court judgment without the further leave of this court. 6 Mr Ash of counsel, who appeared for Mr Easey upon the ex parte application for leave, nevertheless drew my attention to considerations which may militate against the grant of leave. He referred me to the decision of Hansen J in Wolstenholme v National Express Group Australia (Swanston Trams) Pty Ltd [2003] VSC 476. In that case, leave was sought by a person who had instituted tort-based claims against a tramway operator which had executed a deed of company arrangement. After analysing the effect of the deed, Hansen J declined to grant leave. He did so because, in essence, the grant of leave would have been otiose: according to Hansen J's assessment of the deed terms, the tort claim sought to be pursued had been extinguished by the deed. I quote from his Honour's judgment (at [23]-[28]): "The primary point that Mr Whelan QC relies upon is one that is drawn from cl 9 in the context of all of the other definitions of the deed, in providing for a release of all claims.

The effect of cl 9 was conceded by Mr Catlin to be that existing claims, being those existing at the time when the available property was received by the deed administrators, were extinguished.

The language of cl 9 indicates that on that occurring, the claim that one has is not the original claim against a franchisee company, but an equivalent claim against the available property. An equivalent claim is a claim that existed on or before the appointment date.

And therein lies the sting in the deed administrators' point. What the respective plaintiffs have filed is a proceeding in the County Court against two named corporate entities, but a claim against those entities has, by the deed, been released upon the receipt by the deed administrators of the available property.

It would follow, as Mr Whelan QC foreshadowed, that if the claim against either company were to proceed it would be met by a plea in bar by way of defence in those proceedings and no amount of leave that I might give on this application could take away the efficacy of that plea because it is based on the express provision in the deed of company arrangement. Indeed, under cl 9.2 the plaintiff could be called upon to execute a release of the claim against the company.

It is for that reason that it is said by the deed administrators that for leave to be given to continue with the proceedings the court would have to somehow vary the operation of the deed so as to except the subject proceedings from its operation. It is a nice question as to how the exception would be expressed, or indeed could properly be achieved, having regard to the fundamental provisions of the deed. Neither originating process sought a variation to the terms or operation of the deed." 7 Mr Ash has very properly raised the possibility that the same position may prevail in this case, with the result that the present application is futile. 8 I turn, therefore, to the provisions of the deed of company arrangement. I begin by quoting the definition of "Claim" and the definition of "Creditor": "'Claim' means any debt payable by or any claim against the Company in any amount, including a claim which is present or future, certain or contingent, ascertained or sounding only in damages being a debt or a claim the circumstances giving rise to which occurred on or before the Fixed Date regardless of whether the claim or debt arose by virtue of contract, at law (including by statute) in equity or otherwise." "' Creditor ' means any person (including where relevant his or executors, administrators, heirs, transferees, subrogates and assigns) with or maintaining a right to a Claim or who is owed a debt by the Company which Claim or debt would be admissible to proof pursuant to Division 6 of Part 5.6 of the Corporations Act as if references to the liquidator were references to the Deed's Administrator." 9 The "Fixed Day" is defined as 26 November 2002. The plaintiff's alleged injury at the shopping centre was sustained in March 2002. His damages claim may therefore be accepted as being within the definition of "Claim" (particularly by reference to the words "… any claim against the Company … including a claim … sounding only in damages …") and he may be accepted as being a "Creditor", given the importation of the rules as to admissibility to proof under Division 6 of Part 5.6 and the reference therein (more specifically, in s.553(1)) to claims sounding in damages. 10 The deed of company arrangement deals with "Creditors" in two different ways. In relation to those "Creditors" who prove their claims in accordance with the deed, provision is made for payments to them out of an account maintained by the deed administrator. They are to be paid, in respect of their claims, in broadly the same way as if they were creditors in a winding up and the funds in the account were the funds available for application in that winding up. It is also provided that these "Creditors" must accept these payments in respect of their claims; and that, upon payment out "all Claims are then released in full and extinguished and this Deed may be pleaded against any Creditor in bar of its claim". 11 The other group of "Creditors" dealt with by the deed consists of those who do not prove or whose rejected claims are not pursued in a particular way. Every such "Creditor": "… will be deemed to have abandoned that Claim and will be barred from instituting or continuing any legal or other proceedings, or from otherwise maintaining an entitlement to claim under this Deed or to recover or to be paid the whole or any part of their Claim and that Claim will be disregarded by the Deed's Administrators in calculating and making any distribution to Creditors under this Deed, unless the Deed's Administrators in their absolute and uncontrolled discretion otherwise determine." 12 Mr Easey did not prove or otherwise seek to participate under the deed of company arrangement. It follows, according to the approach outlined by Mr Ash, that he is deemed to have abandoned his "Claim" and is barred from any form of recovery in respect of it, the deed being available to be pleaded against him in bar. 13 As is explained in MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636, a deed of company arrangement comes into being, as a creation of statute, by means of execution of the relevant document by both the company and the deed administrator. This is the effect of s.444B(6). At that point, s.444D(1) operates: "A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i)." 14 Read in light of the fact that the specified date in this case was 26 November 2002 and the principle that, in Part 5.3A, a reference to "creditors" includes a reference to a person having an unliquidated claim based in tort (Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24), s.444D(1) may be taken to produce the result that the deed of company arrangement of Grosvenor became binding on Mr Easey in respect of the claim he considers himself to have against Grosvenor. 15 In these circumstances, it may be that Mr Easey's tort claim against Grosvenor has been extinguished and that the provisions of the deed of company arrangement may be pleaded in bar against that claim. That is the approach favoured by Hansen J in Wolstenholme. An alternative possibility is indicated by the judgment of Campbell J in Josia Pty Ltd v Horvat Constructions Pty Ltd [2004] NSWSC 1252. In circumstances somewhat similar to those now before me, his Honour said (at [6]-[8]): "The deed operates, under clause 16, as a bar to all creditors' claims, whether or not admitted or established under the deed. The bar in the clause operates by reference to a defined term 'Debt' , which is defined as including unliquidated claims, such as those the plaintiff wishes to make in its cross-claim against the builder.

The present applicant does not know what the state of administration of the Deed Fund is, or whether there is any money left in the Deed Fund. The administrator of the Deed Fund has been served and has not appeared.

One argument which was advanced in correspondence by the administrator of the Deed Fund, was that the moratorium and bar provision in the deed would effectively prevent any proceedings being brought. I do not accept that is so. The moratorium provision in the deed prevents only actions which could not have been taken if the company had been wound up. If the company had been wound up, action could still have been taken against it with the leave of the Court. The bar provision would need to be read with section 444E of the Corporations Act 2001 ( Cth), which expressly allows for the possibility that proceedings can be begun against a company the subject of a deed of administration with the leave of the Court. A deed cannot oust that power of the Court." 16 The clear indication here is that leave of the court under s.444E(3) may allow to be pursued a proceeding which, by operation of s.444D(1) in relation to the deed provisions, would otherwise be unavailable. 17 Mr Ash submits that, even if the approach that commended itself to Hansen J is correct and applies in this case, there is still utility in a grant of leave under s.444E(3) in respect of Mr Easey's claim against Grosvenor. This argument has regard to the fact that Grosvenor carried insurance in respect of relevant claims so that s.6 of the Law Reform (Miscellaneous Provisions) Act 1946 applies: " Amount of liability to be charge on insurance moneys payable against that liability (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.

(2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured (being a corporation) is being wound up, or if any subsequent winding-up of the insured (being a corporation) is deemed to have commenced not later than the happening of that event, the provisions of subsection (1) shall apply notwithstanding the winding-up.

(3) Every charge created by this section shall have priority over all other charges affecting the said insurance moneys, and where the same insurance moneys are subject to two or more charges by virtue of this Part those charges shall have priority between themselves in the order of the dates of the events out of which the liability arose, or, if such charges arise out of events happening on the same date, they shall rank equally between themselves.

(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken.

(5) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter.

(6) Any payment made by the insurer under the contract of insurance without actual notice of the existence of any such charge shall to the extent of that payment be a valid discharge to the insurer, notwithstanding anything in this Part contained.

(7) No insurer shall be liable under this Part for any greater sum than that fixed by the contract of insurance between the insurer and the insured.

(8) Nothing in this section shall affect the operation of any of the provisions of the Workers Compensation Act 1987 or the Motor Vehicles (Third Party Insurance) Act 1942 .

(9) Despite subsection (8), this section applies in relation to a policy of workers compensation insurance entered into by an employer (whether entered into before or after the commencement of this subsection), where the employer: (a) being a natural person, has died, or is permanently resident outside the Commonwealth and its Territories, or cannot after due inquiry and search be found, or (b) being a corporation (other than a company that has commenced to be wound up), has ceased to exist, or (c) being a company, corporation, society, association or other body (other than a company that has commenced to be wound up), was at the time when it commenced to employ workers to which the policy relates incorporated outside the Commonwealth and its Territories and registered as a foreign company under the laws of any State or Territory and is not so registered under any such law, or (d) being a company, is in the course of being wound up." 18 Mr Ash acknowledges that Mr Easey could proceed against Grosvenor's insurer under s.6 direct and without any need to sue Grosvenor. But he says that Mr Easey would then be met by a defence based on the expiration of the relevant limitation period. That defence might, however, be unavailable to the insurer if proceedings can be seen to have been commenced against Grosvenor itself within the relevant limitation period. This, it is said, is the effect of the Court of Appeal's decision in Kinzett v McCourt (1999) 46 NSWLR 32. It is sufficient, for present purposes, to quote from the headnote: "(5) (Meagher JA dissenting) In proceedings to enforce a statutory charge created by s 6(1) of the Law Reform (Miscellaneous Provisions) Act 1946 , time under the Limitation Act 1969 commences to run in favour of the insurer not from the date of the event which gives rise to the claim against the insured, or from the date of the grant of leave to proceed against the insurer, but on the same basis as it runs in favour of the insured. McMillan v Mannix (1993) 31 NSWLR 538, considered. Grimson v Aviation & General (Underwriting) Agents Pty Ltd (1991) 25 NSWLR 422; New South Wales Medical Defence Union Ltd v Crawford (1993) 31 NSWLR 469, not followed. (6) (Meagher JA dissenting) Accordingly, time stops running in favour of the insurer when proceedings are in fact taken against the insured. FAI (NZ) General Insurance v Blundell & Brown Ltd [1994] 1 NZLR 11 at 20, followed."

(The majority consisted of Spigelman CJ, Mason P, Priestley JA and Handley JA.) 19 The point Mr Ash makes is that, if the limitation period within which Mr Easey may proceed directly against the insurer has now passed, that difficulty for Mr Easey may be seen to have been overcome if proceedings against the insured (Grosvenor) are extant and were commenced within time; and that his ability to access the s.6 "charge" will thereby be secured. Mr Ash referred to the decision of Wilson J in Re QMT Constructions Pty Ltd [2000] 1 QdR 284 as providing a useful analogy in circumstances where proceedings requiring leave under s.444E(3) are an essential ingredient in obtaining the benefit of a scheme of statutory protection (in that case under the Subcontractors' Charges Act 1974 (Qld)). 20 I have already said that, apart from any question of futility of the kind addressed in Wolstenholme v National Express (above), there is a clear case for a grant of leave under s.444E(3) in this case. The real question, therefore, is whether the futility is established in such a way as to warrant the withholding of leave, despite the clear case to which I have referred. 21 I am not satisfied that any consideration of futility should be allowed to stand in the way of a grant of leave. In the first place, there is sufficient substance in Mr Ash's submission based on Kinzett v McCourt (above) to justify opening the way for pursuit by Mr Easey of the claims he wishes to advance against Grosvenor. I do not need to come to any concluded view whether that will secure for Mr Easey a solution to the limitation difficulty he may otherwise face in pursuing his independent statutory claim against Grosvenor's insurer. It is sufficient that I record a finding that there is a sufficient degree of substance to that view to lead to a conclusion that the proceedings by Mr Easey against Grosvenor will not be devoid of purpose. 22 In addition, there is at least a possibility that the bar ostensibly created by the deed of company arrangement may, on full argument upon a contested hearing, be seen to be a bar which does not apply to proceedings in respect of which s.444E(3) leave has been granted. This is the possibility raised by Campbell J in Josia Pty Ltd v Horvat Constructions Pty Ltd (above). While, for my own part, I have doubts about that possibility and am inclined to prefer the approach reflected in the judgment of Hansen J in Wolstenholme, I do not regard this present ex parte application as an appropriate forum in which to express a concluded view on the matter. The contention that Mr Easey's claim is barred by the deed of company arrangement is one which, if advanced at all, will be most productively advanced by way of defence in the District Court proceedings upon full argument (or, conceivably, upon a claim for a stay of those proceedings, again upon full argument). 23 The orders of the court are as follows:

1. Order pursuant to s.444E(3) of the Corporations Act 2001 (Cth) that there be granted to Barry Easey: (a) leave nunc pro tunc to begin the proceeding against Grosvenor Constructions (NSW) Pty Limited initiated by him by means of amended ordinary statement of claim filed on 31 January 2005 in action 1114 of 2003 in the District Court of New South Wales; and (b) leave to proceed with that proceeding.

2. Order that any judgment obtained in that proceeding against Grosvenor Constructions (NSW) Pty Limited shall not be enforced without the further leave of the court. **********

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