Hitachi Data Systems Australia Pty Ltd v ACN 001 956 770 Pty Ltd (in liq) [1998] FCA 959

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 144 of 1998

BETWEEN: hitachi data systems

australia pty limited

Applicant

AND: acn 001 956 770 pty limited

(in liquidation)

Respondent

JUDGE: WHITLAM J

DATE OF ORDER: 13 august 1998

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. The applicant's motion, notice of which was filed on 21 May 1998, is refused. 2. The applicant pay forthwith to Christopher Damien Darin as liquidator of the respondent his costs of the motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 144 of 1998

BETWEEN: hitachi data systems

australia pty limited

Applicant

AND: acn 001 956 770 pty limited

(in liquidation)

Respondent

JUDGE: WHITLAM J

DATE: 13 august 1998

PLACE: SYDNEY

REASONS FOR JUDGMENT This proceeding was commenced irregularly. An administrator of the respondent having been appointed under Part 5.3A of the Corporations Law ("the Law") on 3 February 1997 and its creditors having subsequently resolved under s 439C(c) of the Law that it be wound up, an application for leave to commence this proceeding should have been made in accordance with subrule 70(2) of the Corporations Rules. This was not done. The originating process was filed on 27 February 1998, and the applicant now seeks leave nunc pro tunc under s 500(2) of the Law to commence its action against the respondent. The respondent has not entered an appearance, but the liquidator of the respondent has been given leave to be heard in opposition to the present motion. The application specifies the relief claimed as damages in the amount of $5,201,205.14. The accompanying statement of claim alleges breaches of two contracts and contraventions of s 52 of the Trade Practices Act 1974. It is alleged that the contracts provided for the conversion of computer software and that the respondent made certain representations in connexion with those contracts that were misleading and deceptive or likely to mislead and deceive. The applicant has adduced in support of its motion evidence to show that its claim has a solid foundation and gives rise to a serious dispute: Vagrand Pty Ltd (In Liq) v Fielding (1993) 41 FCR 550 at 556-557. For the purpose of the applicant's motion, the liquidator does not dispute the existence of a serious claim and a real dispute. The applicant has also proved in the winding up for the amount of its claim in this proceeding. A formal proof was sent by post to the liquidator on 20 August 1997. Extensive correspondence has ensued between the applicant's solicitors and the liquidator's solicitors. The liquidator has not yet made a decision to admit or reject the proof. A report dated 24 July 1998 by the liquidator to the respondent's creditors is in evidence. This report attaches a summary of receipts and payments, which indicates that as at 14 July 1998 the liquidator held funds of only $34,365.68 in the administration. In addition, the liquidator's report refers to a policy of professional indemnity insurance that is also in evidence. The respondent appears to have had cover for breach of its professional duty as "computer consultants" in the period from 20 March 1992 to 31 March 1996, which covers the period of the claim in this proceeding. The limit of the indemnity is $1,000,000 and an excess of $10,000 is applicable. Importantly, the policy contains an exclusion in respect of claims for delay. Notwithstanding the fixed sum for damages claimed under s 82 of the Trade Practices Act, it may confidently be said that prior to the change in s 553 of the Law effected by the Corporate Law Reform Act 1992, the applicant could not have proved for such a claim in the winding up. There is no doubt that such a claim is now admissible to proof. The insurer has met the liquidator's costs to date in connexion with this proceeding, but has not yet determined whether to deny indemnity under the policy. There is, however, no prospect of an indemnity in respect of the full amount of the claim. This is a very different case to that of a company wholly indemnified in respect of a discrete personal injury claim by a third party motor vehicle or worker's compensation insurer. It must be borne in mind too that any amount received from the insurer under the professional indemnity policy will, in any event, be paid to the applicant by virtue of s 562 of the Law. (The liquidator may, of course, first deduct any expense of or incidental to getting in that amount.) In Ogilvie-Grant v East (1983) 7 ACLR 669 McPherson J said (at 672) in an oft-cited passage: "The question whether a claimant should be permitted to proceed by action, or should be required to submit his proof of debt and, if dissatisfied, appeal to a judge, is therefore reduced largely to one of choosing between alternative forms of procedure. The effect of [the section] is to require the claimant to adopt the course of lodging proof of debt unless he can demonstrate that there is some good reason why a departure from that procedure is justified in the case of the particular claim in dispute . . . It, of course follows that it is quite impossible to state in an exhaustive manner all the circumstances in which leave to proceed may be appropriate, but in the past they have been said to include factors such as the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and the stage to which the proceedings, if already commenced, may have progressed." This statement was approved by the Full Court of this Court in Vagrand Pty Ltd (In Liq) v Fielding at 556. Counsel for the applicant contends that the first two of the factors identified by McPherson J apply in the present case. The complex factual issues are said to concern the reliability of the respondent's software, delays in completion of the contracts, the link between changes in plans and losses, the reasonableness of the applicant's mitigation, and the software conversion processes. I do not accept that submission. I think that this case falls squarely within the observation of Lehane J in Meehan v Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSR 123, where his Honour said (at 128): "The starting point must be, I think, that claims for unliquidated damages under the Trade Practices Act, for breach of contract and for tort are admissible to proof. The general rule in relation to such claims is, as with other provable claims, that proceedings on them may not be instituted or continued except with the leave of the court. A common characteristic of claims of that kind is that there will be disputed questions of fact, there may be some disputed issues of law and there will be questions relating to the assessment of damages. The mere fact that such a claim possesses those common characteristics cannot, I think, mean that it will fall within an exception to the general rule, so that leave to proceed will be given. The claims in this case have the common characteristics to which I have referred; but I accept the submission of the respondent that they do not have those characteristics to any exceptional extent. The claim, in the context of the total claims against the first respondent and its available assets, is certainly a large one, but I do not think that that, though no doubt a factor to be taken into account, necessarily means that leave to proceed should be granted." Lehane J was dealing with an application for leave under s 444E(3) of the Law, but his Honour accepted that the principles applicable were those which the Court applies when considering, in a winding up by the Court, a similar application under s 471B. I do not think that it makes any difference that here the respondent is being wound up voluntarily. In any event, I consider that those remarks are apposite in the present case. Here the liquidator is well placed to investigate and assess the claim of the applicant in the usual course. It seems to me entirely inappropriate to expose the very limited funds in the administration to depletion in an action where the costs are likely to be substantial. The motion is refused. The applicant must pay the liquidator's costs of the motion.