Re Pan Pharmaceuticals Ltd; Selim v McGrath [2019] NSWSC 1259 | Case summary

Re Pan Pharmaceuticals Ltd; Selim v McGrath [2019] NSWSC 1259 | Case summary | Zoe

Judgment - EX TEMPORE (REVISED 5 SEPTEMBER 2019)

By Originating Process filed on 17 July 2019, the Plaintiff, Mr Mohamad Fawal applies under s 471B of the Corporations Act 2001 (Cth) for leave to continue proceedings that are current in the Sydney Registry of the District Court against the Defendant, Essential Access & Scaffolding Pty Ltd (in liq) ("Essential Access"). This application is brought nunc pro tunc in circumstances that the proceedings in the District Court are already continuing, by leave, against the Defendant, Apex Construction Management Pty Ltd (in liq) ("Apex") and were amended, in October 2017, to include Essential Access as a Second Defendant. It appears that the liquidator of Essential Access does not oppose the grant of leave.
An insurer, AAI Limited trading as Vero Insurance ("Vero") has been heard as an interested person under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW). Vero has raised matters which may not have been necessary to determine in order to deal with the leave application, but I will address them to the extent that they have been canvassed in submissions before me.
The Originating Process is supported by two affidavits of a solicitor appearing for Mr Fawal in the proceedings, Ms Ramina Dimitri, sworn 17 July 2019 and 2 August 2019. The first sets out the circumstances in which an accident occurred on a construction site, which is the origin of the proceedings brought by Mr Fawal against Apex and Essential Access. Ms Dimitri there refers to documents which identify Essential Access as a subcontractor to the principal contractor, Apex, in relation to scaffolding works. Ms Dimitri also refers to the fact that Apex was insured and indemnified by Vero in accordance with a Contract Works and Legal Liability Policy, which appears to have been current as at the date of the accident. That contract in turn has an extension of the "Persons Insured" to mean relevantly: "[A]ny sub-contractor to entities noted in sub-clauses 1 or 3 above being a legal entity with whom such Persons Insured has entered into a sub-contract or sub-agreement for the performance of any part or parts of the Contract Works, but only to the extent required by sub-contract or sub-agreement." There was some reference to the scope of that extension in the course of submissions, and I will return to that matter below.
Ms Dimitri's first affidavit in turn refers to the Further Amended Statement of Claim which relevantly pleads the circumstances of the accident. It is alleged that scaffolding planks collapsed beneath Mr Fawal while he was walking across them causing him to fall several levels down the building. The Further Amended Statement of Claim pleads that Apex and Essential Scaffolding each owed a duty of care; that a reasonable person in the position of, relevantly, Essential Scaffolding, would have insured that certain steps were taken; that there has been a breach of the pleaded duties and that Mr Fawal suffered injury, disability, loss and damage in consequence. There was no contest that a seriously arguable question was raised in respect of those matters.
By further affidavit of Ms Dimitri dated 2 August 2019, she refers to correspondence to the liquidator in respect of the relevant issues. She also annexed documents which demonstrate that, on the face of it, Essential Access was working on site at the relevant time, and had constructed the relevant scaffolding which ultimately collapsed. She also annexes handover documents and a Safe Work Method Statement prepared by Essential Access, directed to work to be done at the relevant site and recording the principal contractor as Apex. That document potentially supports an inference that there was a formalised arrangement for work at the relevant site, extending at least, when combined with handover certificates to which I have referred, to the scaffolding work which collapsed.
Vero in turn relies on an affidavit of Mr Moroney dated 22 July 2019, which indicates that Vero denies the Plaintiffs' claim that Vero provided public liability insurance to Essential Access. That appears to turn on a question of construction of the relevant policy to which I will return. Vero also refers to the fact that the liquidator has not yet made a claim against Vero. That is perhaps unsurprising, in circumstances that, while Essential Access has been joined as a party to the proceeding, leave has not yet been granted to continue the proceedings against it. I would not infer that a Court-appointed liquidator, when a company is properly joined as party to District Court proceedings and this Court has granted leave for the continuance of those proceedings, would fail to make a claim against its insurer, if insurance was available in respect of that claim, and potentially frustrate the Plaintiff's rights. Mr Perla, who appeared for Vero, properly eschewed any submission that a liquidator would act in that manner. No doubt, in this case, the liquidator will consider his or her obligations in respect of the lodgement of a claim on Vero, if the Court grants leave for continuance of the proceedings against Essential Access which then continue in the District Court.
Both Essential Access, for whom by Mr Macarounas appears, and Vero draw attention to the applicable principles for a grant of leave and there is no contest as to the scope of those principles. Mr Macarounas refers to the decision in Ex parte Walker (1982) 6 ACLR 423 at 426, recognising that an application for leave nunc pro tunc to continue an action which has been commenced without leave may be given if good cause is shown on the merits. That decision refers to the relevance of the question whether a claim should proceed in Court proceedings, rather than being determined by proof of debt in a winding up. Mr Macarounas submits that the claim in issue here is one that is properly dealt with in Court proceedings. That proposition seems to me to be a strong one, where existing proceedings are already continuing against Apex; there may be a question whether Apex or Essential Access or both are liable, which is best determined together rather than separately; and claims by way of personal injury would not readily be quantified by a liquidator so as to be dealt with by proof of debt.
The decision in Ex parte Walker above also recognises that leave is more readily granted where an insurance company stands behind a company in liquidation to pay any judgment which a plaintiff may obtain against it, if successful, and such an action is unlikely to prejudice creditors of a company. The proposition that leave will be more readily granted where a company is insured against a relevant liability, in the manner I have noted above, has of course been recognised in subsequent cases, including Re Coastal Constructions Pty Ltd (in liq) (1994) 13 ACSR 329; Re Ozrac Engineering New South Wales Pty Ltd (in liq) [2013] NSWSC 740; and Re Reed Constructions Australia Pty Ltd (in liq) [2015] NSWSC 2033.
Mr Macarounas fairly submits that the Court need not reach any final decision as to insurance cover in this application, which may, depending on how events develop, be a question for the District Court, or for Vero acting consistently with its contractual obligations and any obligations which may apply to it as an Australian Financial Services licensee under Chapter 7 of the Corporations Act. It is sufficient that I note that it seems to me strongly arguable that the policy would extend to a claim by Mr Fawal against Essential Access in the relevant circumstances, so far as any contract was formed by conduct between Apex and Essential Access; and the evidence could readily support an inference that that contract required scaffolding works, and very likely scaffolding works at levels 6 and 7 of the relevant properties, to be conducted by Essential Access as subcontractor to Apex. Mr Perla fairly accepted, in the course of the submissions, that that proposition was at least arguable, or strongly arguable.
It follows that, for present purposes, I should proceed on the basis that, if and when a liquidator of Essential Access makes a claim against Vero, as I infer that it would do if the claim against that company is continuing in the District Court, then it is strongly arguable that that claim is covered by insurance. In those circumstances, the Court will more readily grant leave to proceed. A condition will, of course, often be imposed that the Plaintiff will not enforce any such judgment without leave of the Court.
Pausing here, it seems to me that the matters relevant to a grant of leave would readily have been established, so far as there is, on the face of it, a seriously arguable claim against Essential Access; it is at least seriously arguable that that claim will be covered by insurance, when the liquidator makes a claim against Vero in that respect; and the claim would not readily be determined by the proof of debt process, both because there will be uncertainty as to whether Apex or Essential Access or both are liable, and because of the complexity of determining issues as to loss and damage in respect of the personal injury claim.
A remaining issue arose, and was given significant weight by Vero in submissions, namely that Ms Dimitri's affidavit refers to an intention, or at least a possibility, of seeking to "substitute" Vero in the proceedings in the District Court. In particular, in her affidavit dated 17 July 2019, Ms Dimitri refers to orders made by Judicial Registrar Howard requiring service of evidence and the making of any application to substitute Vero for Essential Access in the proceedings. In submissions, Mr Macarounas also refers to the purpose of this application as to allow the proceedings to continue, such that Mr Fawal may press an application in the District Court to have Vero brought into the proceedings as a party using a "substitution mechanism" which allows an insurer to be joined directly to the proceedings. Mr Macarounas in turn there refers to the mechanisms available under s 51 of the Insurance Contracts Act 1984 (Cth) and under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), as preserved by s 12 of the Civil Liability (Third Party Claims against Insurers) Act 2017 (NSW). Mr Perla responds that leave should not be granted, because it is not necessary for Mr Fawal to obtain leave to continue the proceedings against Essential Access, in order to bring direct proceedings against Vero. Mr Perla in turn makes submissions to seek to establish that proposition. I do not propose to determine that question, which may ultimately be in issue in the District Court.
I recognise that Ms Dimitri has at least referred to the orders made by the District Court that contemplate that such an application may be brought and Mr Macarounas in submissions has at least foreshadowed that such an application may be brought. However, it seems to me that Mr Fawal has two legitimate interests which will be promoted by the grant of leave, such that he should be permitted to continue proceedings against Essential Access, irrespective of whether, and when, Vero might be joined directly in the proceedings, if an application to do so is pursued. The first is that Mr Fawal has an interest in preserving the possibility that Vero might, when a claim is made by a liquidator, simply acknowledge that the proper construction of the policy responds to the claim in the relevant circumstances. While there has been no particular indication in the course of this application that Vero contemplates such an approach, it is by no means clear to me that the arguments to which it has pointed provide any substantial support for the contrary view. Second, it seems to me that Mr Fawal is entitled to preserve the ability to determine for himself when and if such an application were made, rather than being forced to bring it now because leave is not granted to continue the proceedings against Essential Access. For example, Mr Fawal may prefer to obtain judgment against Essential Access, which may be undefended if Vero does not choose to assume the defence of the proceedings, and then fund the liquidator of Essential Access to bring a claim for indemnity in respect of such a judgment for his benefit. There is no reason that such options should be closed off, by depriving Mr Fawal of leave to bring otherwise arguable proceedings, and requiring that he be forced to the alternative of bringing proceedings directly against Vero, at this point rather than at a point of his choosing.
For these reasons, I am satisfied that an order for leave to continue the proceedings should be granted, on the usual basis that Mr Fawal may not enforce a judgment against the company without leave. Vero has foreshadowed that it wishes to be heard as to the question of costs, I will allow it that opportunity if it seeks it.

[3]

Costs

The Plaintiff, Mr Fawal, seeks the costs of the hearing today, as distinct from the preparatory steps for this application, against Vero. Vero in turn submits, in something of a strategic withdrawal from the position foreshadowed in its earlier submissions, that Mr Fawal should not have the costs of the application, rather than that an order for costs should be made against him.
The ordinary position is that an order for costs will only be made in favour of, or against, a non-party who is granted leave to be heard under r 2.13 in circumstances outside the ordinary and expected course of events: Re Pan Pharmaceuticals Ltd; Selim v McGrath [2004] NSWSC 129; Re Gia Frienze Investments Pty Ltd [2013] NSWSC 99. Mr Macarounas points, as a matter which fell outside the ordinary course of events, to the extent to which Vero had canvassed the question of whether a "substitution" order might be made in joining Vero in the District Court proceedings. Another matter that is out of the ordinary is Vero's intervention in this application, where applications of this kind are often dealt with on an uncontested basis by Registrars of the Court, and an earlier application in respect of Apex had been dealt with in that manner, presumably at little cost to the Plaintiff. By contrast, this hearing has continued over two hours before a Judge. Mr Perla responds that the Plaintiff should have no costs of the application because he required leave of the Court to bring the relevant proceedings; there was delay in bringing the application, and there is no explanation for that delay; and the Plaintiff relied on what are described by Mr Perla as "erroneous" submissions in relation to the substitution question.
On balance, it seems to me that this is a case out of the ordinary, where the costs of the application have been significantly increased by Vero's involvement, at least so far as the hearing today is concerned. It seems to me that there is little substance in Vero's submission as to the fact that the Plaintiff needed leave in any event and as to delay, where leave could readily have been addressed by a Registrar had the matter not been contested by Vero, and where applications of this kind are often dealt with after proceedings have been commenced, by orders made nunc pro tunc. I have ultimately not had to determine the substitution question, but one oddity of today is that Vero's intervention appears to have been addressed to matters relied on in the affidavit in support of leave, notwithstanding that there seems to have been little real dispute that leave would readily be granted on orthodox principles. Vero has also been unsuccessful, in substance, in a number of the submissions it has put. I am satisfied that this is an exceptional case in which an order should be made against the party intervening, where that has delayed the resolution of the matter and imposed costs upon the Plaintiff which would not otherwise have been incurred.
For these reasons I make the following orders:
Grant leave, nunc pro tunc, for the Plaintiff, Mr Mohamad Fawal to proceed with his claim against the Defendant, Essential Access & Scaffolding Pty Ltd (in liq) in proceedings 2017/259390 in the District Court of New South Wales. 1A. The Plaintiff not to enforce any judgment against the Defendant without leave of the Court.
The intervening party, AAI Limited trading as Vero Insurance, pay Mr Fawal's costs limited to the costs of the hearing today, as agreed or as assessed.

Re Pan Pharmaceuticals Ltd; Selim v McGrath

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