Genworth Financial Mortgage Insurance Pty Ltd v KCRAM Pty Ltd

REASONS FOR JUDGMENT 1 The applicant ('Genworth') is a provider of mortgage insurance to lenders. The respondent ('KCRAM') was a property valuer formerly known as PRP Valuers and Consultants Gold Coast Pty Ltd. Genworth provided mortgage insurance to lenders in respect of four loan transactions each of which was secured by a mortgage over land. The borrowers eventually defaulted and the security properties sold. The proceeds of sale were not sufficient to discharge the full amounts then owing to the lenders who then claimed under the insurance issued to them by Genworth for the difference. Genworth now says that in insuring the lenders it relied upon valuations issued to it by KCRAM which it alleges, inter alia, were issued negligently. It claims the amounts it has been required to pay to the lenders. 2 These proceedings were commenced on 5 April 2011. On 21 June 2011, the members of KCRAM resolved that it should be wound up voluntarily and it appears that the creditors acceded to this. That winding up presents a procedural hurdle for Genworth for, by s 500(2) of the Corporations Act 2001 (Cth) (the 'Act'), '[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.' 3 It is for such a grant of leave that Genworth now applies. Its reasons for doing so are that KCRAM has the benefit of a policy of professional indemnity insurance which provides it with ample cover in respect of Genworth's claim. Further, because of s 562 of the Act the proceeds of any such insurance will need to be paid to Genworth in priority to all other claims which might otherwise be made on KCRAM. That being so, argues Genworth, its claim against KCRAM has no impact upon the orderly conduct of the winding up and, in a practical sense, does not involve the liquidator. For its part, KCRAM did not take part in the application and its liquidator indicated that the company had no funds. 4 I accept Genworth's submission because I am satisfied that there is utility in granting leave. This is so because the evidence placed before me showed that Genworth's case against KCRAM raised a serious question worth trying and because the presence of an apparently responsive insurance policy ensures that the proceedings are unlikely to be an exercise in futility. The necessity in cases such as the present to establish that there is a serious question to be tried appears in a number of analogous circumstances such as those obtaining in a winding up in insolvency. In that context, the Full Court of this Court remarked that the test to be applied was 'akin to that now used in considering whether interlocutory relief should be granted: "a serious question to be tried"' (Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 556 (FC)). Of course, that is not a sufficient reason for a grant of leave because ordinarily the Act consigns to the liquidator the processing of claims by creditors (including contingent creditors such as plaintiffs). In this case, however, the existence of a responsive insurance policy is a sufficient reason to take it outside that principle: cf. Re Sydney Formworks Pty Ltd (in liq) [1965] NSWR 646 at 651 per McLelland CJ in Equity; Meehan v Stockmans Australian CafÉ (Holdings) Pty Ltd (1996) 22 ACSR 123 at 127 per Lehane J; Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (Receivers and Managers Appointed) (in liquidation) (No.2) [2009] FCA 42 at [23] per Jacobson J. 5 As to the facts of the matter the following should be observed. There were four loans. The lender, the amount of each loan, the loss sustained by the lender on the sale of the security property and the valuation placed upon the security property by KCRAM were as follows: Lender Loan Lender's loss KCRAM's valuation Macquarie $405,650 $124,419.87 $427,000 Macquarie $772,500 $303,450.21 $1,030,000 Permanent $589,206.24 $104,383.28 $775,000 Permanent $800,000 $317,968.75 $1,000,000