Vautin v BY Winddown, Inc.

1. Pursuant to s 500(2) of the Corporations Act 2001, leave be granted to the applicant to continue proceedings number NSD 546 of 2016 against the second respondent.
2. There be no order as to costs in relation to this application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

DERRINGTON J: 1 The application before the Court is for leave pursuant to s 500(2) of the Corporations Act 2001 (Cth). The applicant in proceedings NSD546/2016, Mr Vautin, seeks leave to continue those proceedings against the second respondent, Eagle Yachts Pty Ltd, which has recently been placed into liquidation. The liquidation is a creditors' voluntary winding up, but nevertheless the provisions of s 500(2) apply in relation to such a winding up. 2 The cause of the second respondent's insolvency appears to be the handing down of a judgment by Atkinson J of the Queensland Supreme Court in Tarangau Game Fishing Charters Pty Ltd v Eagle Yachts Pty Ltd [2017] QSC 306. In that decision, her Honour ordered that Eagle Yachts pay damages in an amount of approximately $3.7 million. The circumstances of that case are not wholly separate from those of the matter pending before me, but their relevance is very limited. Nevertheless, the liability has been crystallised by the judgment of that court and caused the liquidation of Eagle Yachts. 3 Presently, the solicitors acting for Mr Vautin are not aware, in any detail, of the financial position of Eagle Yachts, particularly in relation to its entitlement to the benefit of any insurance policies in respect of any of its liabilities. That is something which, no doubt, will be pursued in the future. I apprehend that the liquidator has not, as at this point in time, been able to ascertain whether or not any such policies exist. 4 Relevant to this case is the fact that a trial has been held in the matter between Mr Vautin and Eagle Yachts, as the second respondent, and a company formerly called Bertram Yachts (now referred to as BY Winddown Inc). BY Winddown Inc is the first respondent. That trial has been heard and judgment is pending. The result is that the costs of that litigation have all but been expended and very little will be required to be expended in the future. 5 Turning to the question of what must be ascertained for the purposes of the exercise of a discretion under s 500(2), it is now well established that an applicant for leave to proceed must show some good reason, on the balance of convenience, why the claim should be permitted to be pursued in court, rather than by that person lodging a proof of debt in liquidation. 6 That liquidators can conduct a liquidation in an orderly fashion is most important. Allowing litigation to proceed will necessarily interrupt that in the ordinary case. Nevertheless, other circumstances are also relevant and, in particular, in this case, the fact that the litigation has all but come to an end, at least at first instance, is a significant matter. I might also mention that the importance of the claim in this matter is significant. Mr Vautin's claim is in excess of $6 million, but that is only on his best case. There are a variety of other orders which might be made. Nevertheless, it is a serious matter and that cannot be doubted. 7 The applicant today has identified a number of factors that support the application for leave to proceed. One is that it has a strong case against Eagle Yachts. That is not something on which I am prepared to comment in the circumstances: I have heard the trial and the matter is presently under consideration. That is not to say Mr Vautin's case was not at least an arguable prima facie case and that was, to an extent, recognised by all parties. More significant is that the litigation has been on foot for a significant period of time and largely concluded such that the expenses have already been incurred and there's little further that might be incurred in the future. 8 There is a prospect that, if leave is not granted and the applicant is required to lodge a proof of debt, there may be disputation as to the quantum of Mr Vautin's proof of debt. Given the manner in which the trial was fought, where all parties vigorously advanced their case, that is probably something that should not be ignored and I accept that it is an important factor. That said, to some extent, it involves a matter of prognostication and it is not presently known how the liquidators will react to receiving a proof of debt. Nevertheless, I accept there is a not unreasonable concern that matters might have to be re-litigated. 9 Another question is whether or not any prejudice might be suffered to the company or others. That would not appear to be the case in the present circumstances given that the granting of leave will not cause any significant further expenditure or delay. Ms Rich, for the applicant, has helpfully set out, in her written submissions, a number of similar cases including Quintano v B W Rose Pty Ltd [2008] NSWSC 720. That is a decision of Austin J concerning not dissimilar circumstances. In that case, leave was granted because the trial of the proceedings pursued by the applicant were nearing an end and the expenses of litigation had been mostly incurred, although in that case it seems that the proceedings were not as far advanced as in the matter presently before me. Nevertheless, the point of principle for the present circumstances, as Ms Rich said, is almost indistinguishable. 10 Ms Rich has also referred to a number of similar cases, including Deckers Outdoor Corporation Inc v Farley (No. 5) (2009) 262 ALR 53. 11 In the circumstances of this case, where all the expenses of litigating Mr Vautin's claim have been incurred and very little will be required to be expended by the liquidators in the future in relation to the litigation, the applicant has discharged the onus of showing that there is a good reason, on the balance of convenience, as to why leave to proceed ought be granted and I am prepared to make an order to that effect. 12 The orders of the Court are that: