Tilley Air Conditioning Pty Ltd v Austruc Constructions Ltd

Alati v Wei Sheung (2000) 34 ACSR 489, [2000] NSWSC 601 R v Dunwoody [2004] 212 ALR 103 CASES CITED : Re A Company [1973] 1 WLR 1566, [1974] 1 All ER 256 Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 39 NSWLR 311, 20 ACSR 108 South East Water Ltd v Kitoria Pty Ltd (1996) 21 ACSR 465 Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527

Tilley Air Conditioning Pty Ltd (plaintiff) PARTIES : Austruc Constructions Ltd (defendant/respondent) HC Constructions & Formwork (Aust) Pty Ltd (first applicant) PC Holdings (Aust) Pty Ltd (second applicant)

COUNSEL : Mr T Russell (sol) (applicants) Mr A Cheshire w Mr S Adair (defendant/respondent)

SOLICITORS : ERA Legal (applicants) Crisp Legal Pty Ltd (defendant/respondent)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2617/09 Tilley Air Conditioning Pty Ltd v Austruc Constructions Ltd

JUDGMENT (ex tempore) 1 HIS HONOUR: By interlocutory process filed on 2 June 2009 the applicant HC Constructions and Formwork Australia Pty Limited claims an order pursuant to (CTH) Corporations Act 2001, s 456B(1), that it be substituted as plaintiff in these proceedings, in which Tilley Air Conditioning Pty Limited claims an order that the defendant, Austruc Constructions Ltd, be wound up in insolvency. It appears that the original plaintiff is not proceeding with its application, and has been excused from further attendance or granted leave to withdraw. There is no evidence before the Court as to the basis upon which Tilley's demand has been resolved, nor any evidence as to the solvency of Austruc. In the absence of evidence of solvency, I think I must treat more closely the evidence than might otherwise have been necessary. 2 It is true, as Mr Russell has submitted, that on 11 March 2009 an officer of Austruc signed a note promising to pay HC Constructions $58,000 that day, and that that amount has not been paid. Essentially, Austruc alleges that it has counter claims (or "back charges") which excuse it from having to pay that or any amount to HC Constructions. Its arguments in that respect were anticipated in a letter from its solicitors to Austruc of 7 May 2009, and elaborated in a reply by Austruc which, although it bears the date 26 March, was apparently written on 26 May 2009. It is to be observed that that was before the application for substitution was made, and before HC Constructions initiated any legal proceedings. 3 One of the bases of the back charges claimed by Austruc is an allegation that HC Constructions' purported termination of the contract between them on 11 March 2009 was wrongful. Clause 39 of the contract specifies a procedure which HC Constructions purportedly invoked for termination of contract. Clause 39.7 authorises service by hand or by registered post of a written notice to show cause where the main contractor is alleged to have committed a substantial breach of the sub-contract, such breaches including failing to make a payment due and payable to the sub-contractor. 4 On 10 February 2009, HC sent by facsimile to Austruc a notice entitled "Notice to Show Cause Under Sub-Clause 39.7", which stated that it was a notice under that clause; alleged that Austruc had committed a substantial breach of the sub-contract under sub-clause 39.7(A)(iv), namely, a failure to make payments due and payable to the sub-contractor; and called on Austruc to show cause why HC should not exercise a right referred to in sub-clause 39.9, such cause to be shown by 19 February. Whether, having been sent by facsimile as opposed to by hand or by registered post, it was duly served is a matter which is at least capable of dispute. Moreso is whether it specifies the alleged substantial breach, when it does not specify what payments had not been made under the sub-contract. 5 Clause 39.9 provides that if the main contractor fails to show reasonable cause by the stated date and time, the sub-contractor by written notice can suspend the whole or any part of the works, and that the sub-contractor may by written notice terminate the contract if by 28 days after suspension the sub-contractor fails to remedy the breach. 6 However, on 10 February 2009, Austruc paid HC a sum of $76,973.60. Austruc contends, but HC disputes, that that payment extinguished any arrears due as at 10 February 2009. It is not possible, on the evidence available on this application, to resolve that dispute, which is bare assertion against bare assertion. HC does not appear to have given a notice suspending works under clause 39.9, but on 11 March 2009 it served by facsimile a document entitled Termination of Sub-Contract, reciting that Austruc had committed repeated substantial breaches of the sub-contract by failing to make payments due and payable pursuant to it, reciting also the Notice to Show Cause of 10 February, alleging that Austruc had not responded to the Notice To Show Cause, and purporting to terminate the contract with immediate effect. 7 It is reasonably clear that the procedure prescribed by clause 39, involving a Notice To Show Cause allowing at least a seven day period for a response, followed by a Notice of Suspension and a time frame of 28 days from the suspension for the main contractor to remedy the breach, was not followed. It is, therefore, at least reasonably arguable that the contract was not lawfully terminated. 8 In South East Water Ltd v Kitoria Pty Ltd (1996) 21 ACSR 465, Ryan J said (at 472): In my view, the proper exercise of the discretion conferred by s 465B of the Law requires the court to weigh in the balance two competing policies. The first is that an insolvent company should not be permitted to continue to trade to the detriment of its existing and future creditors but should be wound up as expeditiously as possible. If the achievement of that objective is jeopardised by the inaction or lack of diligence of the petitioning creditor, another creditor should be substituted as contemplated by s 465B(1)(a) to allow the winding up proceedings to continue in the interests of the generality of creditors, some of whom may have refrained from initiating their own proceedings in the knowledge that the original petition had been instituted. On the other hand, the court should not allow winding up proceedings to be used as a debt-collecting mechanism or an instrument of oppression to be held over the head of a company otherwise trading satisfactorily by a creditor whose debt is the subject of a genuine dispute.

See also Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527, in which White J noted that there was authority that any dispute about whether a substituted applicant had standing should be decided on the hearing of the application for substitution, and not deferred to the hearing for the application of a winding up order, and that if the debt claimed by the person claiming to be substituted as petitioning creditor was bona fide disputed on substantial grounds, the substitution should not be made. Thus his Honour concluded that one should not make a substitution order with a view to the standing of the substituted plaintiff being decided on the hearing of the winding up application. It follows that if I cannot be satisfied on this application that the applicant is a creditor of Austruc, I should not make a substitution order. That is so, even though I may be unsatisfied of the solvency of the company. 9 It is true that s 459P confers standing on a contingent creditor as well as a creditor. A contingent creditor is a reference to a creditor whose debt, for some reason or another, is not yet due. It is not a reference to a person who may, on the evidence, turn out to be a debtor and not a creditor at all. The outcome of a dispute as to the existence of the debt is not a relevant contingency. 10 For the reasons I have given, it is at least arguable on substantial grounds that HC was not entitled to terminate the contract as and when it did, and that its termination if wrongful may have occasioned damages to Austruc in excess of the amount said to be due to it by HC. I cannot, therefore, be satisfied on this application that HC is a creditor of Austruc. I must, therefore, dismiss the application for substitution. I order that the interlocutory process be dismissed with costs.

11 By interlocutory process filed on 2 June 2009 the applicant PC Holdings Australia Pty Limited claims an order pursuant to (CTH) Corporations Act 2001, s 456B(1), that it be substituted as plaintiff in these proceedings, which were brought originally by Tilley Air Conditioning Pty Limited as plaintiff against Austruc as defendant for an order that the defendant be wound up in insolvency. 12 PC says that it is the true owner of formwork installed at a site at Turramurra at which Austruc is the main contractor and a company, which I am prepared to infer from the correlation of the directors is related to PC - namely, HC Holdings - has, as my judgment given earlier today records, been a sub-contractor. The sub-contract apparently required HC to provide formwork. PC alleges that the formwork provided by HC was hired by HC from PC and then provided by HC to Austruc under the sub-contract. 13 In a letter dated 18 March 2009 to Austruc, PC asserted that the formwork retained by Austruc at the site was the sole property of PC and had been hired by HC, and that the cost of the hire was now the responsibility of Austruc. The letter then set out weekly hire rates, and terms on which the material would be provided. However, there is, in truth, no evidence of PC's title to the goods in question. There is no evidence of the arrangement between HC and PC under which PC is said to have provided the formwork. 14 Taking PC's case at its highest, it might have a claim for damages in detinue - but at this stage there is no evidence of a demand for return of the formwork; or it might have a restitutionary claim - but this suffers from the defect that at this stage, there is no evidence of any request by Austruc to PC that the formwork be provided. What is quite clear is that PC cannot simply foist a "contract" onto Austruc, however unreasonable it may appear that Austruc retain what PC says is its goods. 15 Despite an observation I made in the course of argument, the prevailing view appears to be that a person with an untried claim for unliquidated damages is not even a contingent or prospective creditor [see, Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 39 NSWLR 311, 20 ACSR 108; R v Dunwoody [2004] 212 ALR 103], although the contrary view has been expressed [in Re A Company [1973] 1 WLR 1566, [1974] 1 All ER 256 and Alati v Wei Sheung [2000] NSWSC 601, (2000) 34 ACSR 489, 493].

16 Even if standing as a contingent creditor were established, the winding up application could then be prosecuted only if leave were granted under s 459P, since a contingent creditor has standing only by leave and not as of right. Given the vagaries and uncertainties that attend PC's claim, and more particularly its apparent relationship with HC, whose application to be substituted has been dismissed, I would not think that this were an appropriate case for a grant of leave, were that question to arise. 17 As PC has not established standing, even as a contingent creditor, but even if it did so it would not be granted leave to bring a winding up application in the present context, I decline to make a substitution order. I order that the interlocutory process be dismissed with costs.

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