Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd

Court of Appeal (NSW)|2018-06-18|Before: Stevenson J

Solicitors: K&L Gates (Appellant) King & Wood Mallesons (First Respondent) Dentons Australia (Second and Third Respondents) File Number(s): 2018/136405 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity - Technology and Construction List Citation: [2018] NSWSC 412 Date of Decision: 5 April 2018 Before: Stevenson J File Number(s): 2017/348623

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Principles

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.)
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."
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

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.
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.
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.
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

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

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

Corporations Act, ss 513B, 513C.
Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2018] NSWSC 412 (Primary Judgment).
Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247; 313 FLR 163.
Primary Judgment at [156].
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."
Primary Judgment at [168].
[2011] VSCA 392 at [55].
In the Matter of DSHE Holdings Limited (recs and mgrs appointed) (in liq) [2018] NSWSC 82 at [18].
Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356 at [22(b)] (Foster J).
[2014] NSWCA 120 at [6].
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

Corporations Act 2001(Cth)ss 439C, 471B, 500(2), 513B, 513C, 553C

At a glance

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Judgment (8 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (7)