Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd

Judgment

1. SACKVILLE AJA: By notice of motion filed on 29 May 2018 the appellant (as I shall refer to it) seeks leave, nunc pro tunc, to commence an appeal against the first respondent (Ostwald), a company in liquidation. The leave is sought pursuant to s 500(2) of the Corporations Act 2001 (Cth) (Corporations Act) which provides as follows: "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."
2. The appellant, as contractor, and Ostwald, as sub-contractor, entered into a contract to perform works on the Pacific Highway near Grafton. On 28 July 2017 Ostwald served on the appellant a payment claim pursuant to s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act), claiming the sum of $6,351,066.08. The appellant did not pay any part of the amount claimed.
3. On 27 September 2017, Ostwald made an adjudication application under s 17(1)(a)(ii) of the Act. On 6 November 2017, the Adjudicator issued an adjudication determination pursuant to s 22 of the Act which determined that the amount due by the appellant to Ostwald was $5,074,218.27.
4. On 17 November 2017, the appellant instituted proceedings in the Technology and Construction List of the Equity Division seeking, among other relief, a declaration that the Adjudicator's determination was void. One ground on which the appellant relied was that Ostwald's adjudication application was made out of time.
5. On 30 November 2017 Ostwald's creditors resolved that it should be wound up under s 439C(c) of the Corporations Act. The winding up is taken to have commenced on 25 August 2017, the date the directors of Ostwald had resolved to appoint administrators. [1]
6. On 8 March 2018, the Supreme Court granted leave to the appellant to proceed against Ostwald.
7. The hearing took place before Stevenson J on 8 and 13 March 2018 and judgment was delivered on 5 April 2018. His Honour rejected the appellant's argument that the adjudication application had been made out of time. [2] His Honour also rejected the appellant's argument that a company in liquidation could not rely on the provisions of Part 3 of the Act. The primary Judge declined to follow a decision of the Victorian Court of Appeal [3] which held that a company in liquidation could not avail itself of similar legislation. In his Honour's view the Victorian decision was "plainly wrong". [4]
8. However, his Honour held that as Ostwald had gone into liquidation following the making of the adjudication determination and before it moved for judgment, s 553C of the Corporations Act governed what was to happen next. [5] His Honour considered that he had: "… no option but to stay any judgment that Ostwald obtains by reason of filing an adjudication certificate following the adjudication determination until the parties' rights are finally determined by the account that must now be taken under s 553C." [6] His Honour concluded that an order to this effect was within the relief claimed by the appellant.
9. Formal orders were made by the primary Judge on 2 May 2018. They included the following: "7. Order that any judgment obtained by [Ostwald] arising from filing of an adjudication certificate in relation to the adjudication determination dated 6 November 2017 be stayed until further order in these proceedings or in the proceedings in which any judgment is obtained with a view that, unless otherwise ordered, that stay will remain in effect until an account is taken of the kind contemplated by s 553C of the Corporations Act 2001 (Cth) as between [Ostwald] and the [appellant] in respect of their mutual dealings."
10. On 18 May 2018 judgment was entered in favour of Ostwald against the appellant in the sum of $5,351,218.83.
11. The appellant seeks leave in order to institute its appeal against the decision of the primary Judge. The draft notice of appeal challenges the primary Judge's finding that the adjudication determination was valid. The orders sought by the appellant include an order in the nature of certiorari quashing the determination and an injunction restraining Ostwald from enforcing the determination.
12. Mr Hume, who appeared for the appellant, submitted that, despite the appellant having filed a motion seeking leave to commence the appeal, the better view is that it does not require leave. Mr Hume contended that although there were conflicting observations in the authorities, this Court would follow dicta of the Victorian Court of Appeal in Mernda Developments Pty Ltd (in liq) v Alamanda Property Investments No 2 Pty Ltd. [7] In that case the Court expressed the view that where an appellant had already been granted leave to commence the proceedings at first instance against a company in liquidation no further leave is required to institute an appeal against the decision.
13. If, contrary to his argument leave is required, Mr Hume submitted that leave should be granted for three main reasons. First, he pointed out that it is common ground that the grounds for the appeal are fairly arguable. Secondly, an appeal is the only efficacious remedy in respect of Stevenson J's finding that the adjudication determination was valid. Since the liquidators will be faced with a final and conclusive judgment of the Equity Division, it is inevitable that the liquidators will deal with any proof of debt lodged by the appellant on the basis that it owes Ostwald over $5 million. Thirdly, it would be inefficient for the liquidators to process the appellant's proof of debt on the assumption that the adjudication determination was valid, only for this Court to decide at a later stage that the primary Judge was in error in so holding. This would require the liquidators to reconsider the proof of debt thereby potentially affecting all creditors.
14. Mr Robertson, who appeared for Ostwald submitted that the liquidators should rule on the proof of debt lodged by the appellant before the appeal proceeded. He relied on an affidavit from Ostwald's solicitor which attached the appellant's proof of debt and recorded the liquidators' advice that they expected to be able to make a decision within four to six weeks.
15. Mr Robertson invited the Court to stand over the motion seeking leave to proceed until after the liquidators ruled on the proof of debt. As I understood his position, he appeared to accept that if the liquidators processed the appellant's proof of debt on the basis that the adjudication determination was valid, it would then be appropriate for the Court to grant leave to the appellant to institute the appeal. In response to questions, Mr Robertson accepted that essentially Ostwald's opposition to the leave application was founded on a desire to minimise costs in the proceedings.

Principles

1. Black J recently helpfully summarised the authorities explaining the approach that should be taken to an application for leave under s 500(2) of the Corporations Act: [8] "Broadly, the purpose of this section is to prevent a company's assets being dissipated by unnecessary litigation, and an applicant for leave will be required to show why it should not be left to prove its debt in the winding up … The claimant must establish that the claim has a solid foundation and gives rise to a serious question to be tried; factors relevant to the exercise of the court's discretion may include the degree of complexity of legal and factual issues and the prospect that a proof of debt will be rejected; and the power to grant leave is discretionary and other factors may be relevant to its exercise …" (Citations omitted.)
2. Black J also cited the observations of Foster J in a Federal Court case as follows: [9] "In determining whether leave should be granted, the Court considers whether the balance of convenience lies in allowing the applicant to proceed by way of action to judgment, or whether the applicant should be left to pursue his or her claim by lodging a proof of debt with the liquidator. The matter is one of discretion and the onus is on the applicant to demonstrate why it is more appropriate in respect of the particular claim, to proceed by way of action."
3. These observations were made in cases where an application was made to institute proceedings at first instance. In Mayo v W & K Holdings (NSW) Pty Ltd, [10] Barrett JA noted that an application under s 471B of the Corporations Act (which applies where a company is being wound up in insolvency) for leave to institute an appeal: "An important issue is as to the prospects of success on appeal or, more precisely, whether there is a serious question for the appellate court." Barrett JA also observed that another important question is whether it is appropriate to remove the controversy from the decision-making process involved in the adjudication by a liquidator of a proof of debt, being a process that is more streamlined than litigation. [11]

Leave should be granted

1. In the present case, the proposed appeal is not only supported by reasonably arguable grounds but they raise significant issues, including the correctness of considered dicta of the Victorian Court of Appeal.
2. The appellant has lodged a proof of debt which, as the primary Judge recognised will require the liquidators to take an account of dealings between Ostwald and the appellant to determine what is due from one party to the other. Since judgment has been entered in favour of Ostwald against the appellant for the amount of the adjudication determination it would seem inevitable that the liquidators will take the account between the parties on the basis that the appellant owes that amount to Ostwald. The only practicable means of the appellant challenging the judgment debt is to allow its appeal to proceed.
3. In any event, the evidence suggests that the liquidators' determination will be made before an appeal will be heard and before the parties are required to file written submissions. In the highly unlikely event of the liquidators taking the accounts on the basis that the appellant does not owe Ostwald the amount of the judgment debt, there will be presumably no necessity for the appeal to proceed.
4. As I have explained, it seems inevitable that the parties will have to prepare an appeal and incur the costs of doing so. It is open to them, if they agree, to defer preparation for a few weeks to allow the liquidators the opportunity to take the accounts. But I see no virtue in simply adjourning the appellant's application and thus requiring the parties to incur further costs unnecessarily when the issue is revisited.

Whether leave is required

1. I have approached the application on the basis that the appellant requires leave to institute the appeal. I think it is better that the question of whether leave is required be decided in a case where it is necessary to do so and the Court has the advantage of full argument on the point.

Order

1. The following order should be made: Pursuant to s 500(2) of the Corporations Act 2001 (Cth) the appellant have leave, nunc pro tunc, to commence its appeal against the decision of Stevenson J given on 5 April 2018.

Endnotes

1. Corporations Act, ss 513B, 513C.
2. Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2018] NSWSC 412 (Primary Judgment).
3. Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247; 313 FLR 163.
4. Primary Judgment at [156].
5. Section 553C(1) of the Corporations Act provides as follows: "(1) Subject to this Division and Division 8, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company."
6. Primary Judgment at [168].
7. [2011] VSCA 392 at [55].
8. In the Matter of DSHE Holdings Limited (recs and mgrs appointed) (in liq) [2018] NSWSC 82 at [18].
9. Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356 at [22(b)] (Foster J).
10. [2014] NSWCA 120 at [6].
11. Mayo v W & K Holdings (NSW) Pty Ltd at [7], citing Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 553-557 per curiam, where the history of the requirement for leave is explored. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 June 2018