Patrick Hanna v New Emerald Energy Pty Ltd

RELEVANT FACTS

1. On 20 December 2023, these proceedings were commenced by the plaintiffs against each of NEE and NWE by the filing of the summons and commercial list statement.
2. The plaintiffs' claims in the proceedings relate to the repayment of four loans alleged to have been made by Mr Hanna to NEE and one loan alleged to have been made by PH Capital to NEE, the latter of which is alleged to have been guaranteed by NWE. The total amount alleged to be owing by NEE to Mr Hanna is in excess of $500,000, including interest. Depending on the way in which certain construction issues are determined, the total amount alleged to be owing by NEE to PH Capital is between about $1.5 million and $3 million plus interest.
3. On 27 December 2023, NWE went into voluntary administration.
4. On 27 February 2024, the summons and commercial list statement were served on NEE. In the commercial list statement the plaintiffs say that the only issues likely to arise are the amounts payable by NEE.
5. On 6 March 2024, a notice of appearance for NEE was filed in the proceedings by its then solicitors, Corrs Chambers Westgarth.
6. On 4 April 2024, Ball J made orders by consent in the proceedings, including that NEE was to request particulars of the commercial list statement by 12 April 2024, the plaintiffs were to respond to that request by 19 April 2024 and NEE was to file and serve any commercial list response by 6 May 2024.
7. On 12 April 2024, Corrs sent a letter to the solicitors for the plaintiffs, Addisons, requesting particulars of the commercial list statement.
8. On 19 April 2024, Addisons sent a letter to Corrs responding to their request for particulars.
9. On 3 May 2024, Corrs filed a notice of removal of solicitor for NEE in the proceedings.
10. NEE did not file or serve a commercial list response by 6 May 2024.
11. On 22 May 2024, Addisons sent a letter by email to NEE referring to its failure to comply with the court's order to file and serve its commercial list response by 6 May 2024 and stating that if NEE had not filed that commercial list response by 27 May 2024, the plaintiffs would file an application for summary judgment against NEE without further notice.
12. NEE did not file or serve a commercial list response by 27 May 2024.
13. On 19 June 2024, the plaintiffs filed a notice of motion seeking summary judgment and a gross sum costs order against NEE, which was listed to be heard on 28 June 2024.
14. On 20 June 2024, a notice of appearance for NEE was filed in the proceedings by its new solicitors, De Mestre and Company.
15. On 26 June 2024, NEE went into voluntary administration, with Jamieson Louttit of JLA Insolvency & Advisory appointed as administrator. As a result, the plaintiffs require the consent of the administrator of NEE or leave of the court to proceed against NEE by virtue of the operation of s 440D(1) of the Corporations Act.
16. On 5 July 2024, the first meeting of the creditors of NEE resolved to replace Mr Louttit as administrator and appoint David Osborne, Richard Tucker and David Johnstone of KordaMentha as administrators in his place.
17. On 9 July 2024, Addisons sent a letter to Mr Osborne of KordaMentha seeking the consent of the administrators of NEE to proceed against NEE for the purpose of the hearing and determining of the plaintiffs' application for summary judgment and a gross sum costs order against NEE.
18. On 11 July 2024, Ashurst, the solicitors for the administrators of NEE, sent a letter to Addisons stating that NEE would not provide their consent for the plaintiffs to proceed against NEE and indicated that they would not consent to nor oppose the application for such leave.
19. Today I granted leave to the plaintiffs to amend the notice of motion filed 19 June 2024 to add an order seeking leave to proceed against NEE.
20. There was no appearance on behalf of the administrators of NEE at the hearing today after they were called outside court.

LEGAL PRINCIPLES

1. Section 440D(1) of the Corporations Act provides: During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except: (a) with the administrator's written consent; or (b) with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
2. In Rialto Sports Pty Limited v Cancer Care Associates Pty Limited; CCA Estates Pty Limited; Davjul Holdings Pty Limited; Armmam Pty Limited (No 2) [2023] NSWCA 246, Gleeson JA at [17]-[24] conveniently summarised the principles relevant to determining an application for leave to proceed under s 440D(1)(b) of the Corporations Act as follows: [17] The purpose of the requirement of leave is to freeze civil proceedings against the company in voluntary administration, so that the administrator can formulate a rational plan for future action. [18] It has been said that this reflects two general themes. First, the undesirability of an administrator being distracted from his or her statutory duties and being required to incur the expense associated with litigation. Second, the undesirability of permitting one creditor to advance their own interests in respect of some disputed matter at the expense of, or at least ahead of, the interests of creditors more generally; that includes to prevent the creation of preferences and interference in the disposition of the property of the company whilst under administration: Slater v Global Finance Group Pty Ltd (1999) 30 ACSR 519 at 522 (Wheeler J); Re Capital General Corp Ltd [2001] VSC 570; (2001) 19 ACLC 848 at [13], [20], [21] (Warren J). [19] There is some divergence in the authorities as to whether the exercise of the Court's discretion to grant leave under s 440D should be approached with an assumption that leave will only rarely be granted, or whether such an approach is an unwarranted confinement of the Court's discretion: see, for example, Foxcroft v The Ink Group Pty Ltd (1994) 15 ACSR 203 at 204-205 (Young J); Brian Rochfort Ltd v Textile Clothing and Footwear Union (NSW) (1998) 47 NSWLR 47 at 67-68 (Austin J); cf Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd [2011] NSWSC 1305; (2011) 285 ALR 207 at [36] (Hammerschlag J). [20] Assuming that there is a difference in approach, it is not necessary to decide which view is correct. On either view, the outcome in this case is the same. Nevertheless, three observations should be made. [21] First, as Doyle J observed in Pybar Mining Services Pty Ltd v Challenger Gold Operations Pty Ltd [2018] SASC 156 at [14]-[15], there is likely to be little practical difference between the competing approaches. That is because, as Hammerschlag J said in Larkden at [39], "[a] stay is the starting point. There must be circumstances which warrant its displacement." [22] Second, the apparent divergence in the authorities can be reconciled, as Doyle J suggested in Pybar at [15]: … Indeed, these two approaches might be reconciled on the basis that they are merely expressed at differing levels of generality or abstraction. It is true that at the most general or abstract level the discretion is unfettered and so must be approached without any preconception as to the caution or rarity with which it will be exercised. However, once the Court moves to the task of exercising the discretion, the considerations underpinning the rationale for the existence of s 440D will generally carry significant weight, and thus require the identification of other considerations of at least equivalent weight before it will be appropriate to grant leave to proceed. While it is perhaps unnecessary to describe this as taking a cautious approach, and as resulting only rarely in leave being appropriate, they are in my mind accurate enough descriptions of the practical application and outcome of the exercise of the discretion under s 440D. [23] Third, as this Court explained in Lianos v Order of AHEPA NSW Inc (No 2) [2020] NSWCA 304 at [24] (Emmett AJA, Macfarlan and Meagher JJA agreeing): While there have been suggestions that leave will rarely be granted, that proposition must be understood in the circumstances of the particular case in which leave is sought. Thus, it may well be that leave will rarely be granted where a claimant seeks to enforce a debt against an association that is subject to administration, where either a DOCA or a liquidation will require the lodging of a proof of debt by the claimant. If there is a real dispute about the debt, leave might well be granted but on terms that no step be taken to enforce any judgment except by way of proof of debt in the administration or winding up. (Citation omitted.) (Emphasis added.) [24] Although not to be treated as a shopping list, some of the factors which the authorities have identified as relevant to the exercise of the discretion to grant leave under s 440D include (see, for example, Attard v James Legal Pty Ltd [2010] NSWCA 311; 80 ACSR 585 at [146]; JF Keir Pty Ltd v Priority Management Systems Pty Ltd [2007] NSWSC 748 at [8], and Kavourakis v Waverley Bowling & Recreation Club Ltd [2010] NSWSC 439 at [5]; Pybar at [16]): • whether the proceedings have a solid foundation and give rise to a serious dispute; • whether, and the extent to which, the administrator would be distracted by the proceedings from his or her own duties and obliged to incur legal costs; • the stage which the proceedings have reached; • who appointed the administrator and the circumstances of that appointment; • who is applying for leave to proceed; • whether the claim is a monetary one; • whether the claim is one in respect of which the company is insured; • any disadvantage to the applicant in not being granted leave to proceed; and • whether there are otherwise good reasons for allowing a creditor to depart from the general intention of Pt 5.3A which is that a creditor ought not be able to take action against the company.

CONSIDERATION

1. In my opinion, it is appropriate that I grant leave to the plaintiffs to proceed with their application for summary judgment and a gross sum costs order for the following reasons: 1. NEE went into administration on the verge of the hearing of the plaintiffs' application for summary judgment and a gross sum costs order, meaning that it was ready to be heard and nearly all of the costs with respect to the time and effort of preparing that application had been incurred by the plaintiffs. 2. The court is in a position to deal with the plaintiffs' application for summary judgment and a gross sum costs order within a relatively short period of time. 3. The administrators of NEE neither consent to nor oppose the application for leave. As a result, it is not anticipated that they would spend any time or incur any costs with respect to the application for summary judgment and a gross sum costs order and it is unlikely that they would seek to contest it. In other words, it is unlikely that the administrators will be distracted by the proceedings from their own duties and obliged to incur legal costs. 4. If the court determines the application for summary judgment and a gross sum costs order in the plaintiffs' favour, they will be in a position to lodge proofs of debt in the administration of NEE without the administrators of NEE undertaking any time intensive and costly investigations and legal analysis before adjudicating on the plaintiffs' claims. This will also relieve the administrators of NEE from the distraction involved in ruling on the proofs of debt. 5. I am satisfied that given the nature of the claims that are made by the plaintiffs against NEE there would likely be significant disputation between them in any proof of debt procedure at the present time and that the pursuit of the summary judgment application will be a quicker, more efficient and cheaper means of determining the amounts of the debts owing by NEE to the plaintiffs.

ORDERS

1. For the reasons set out above, I propose to make the following orders: 1. Grant leave to the plaintiffs pursuant to s 440D(1)(b) of the Corporations Act 2001 (Cth) to proceed with these proceedings against the first defendant only for the purposes of the plaintiffs prosecuting the amended notice of motion filed 26 July 2024 (Motion) and any enforcement of the judgment and orders made pursuant to the determination of the Motion. 2. The costs of this application are the plaintiffs' costs in the cause. 3. Direct that the proceedings be listed in the Commercial (Motions) List on 16 August 2024.

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