New South Wales Supreme Court CITATION : FAI General Insurance Ltd [2002] NSWSC 262 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 1808/01 HEARING DATE(S) : 02/04/02 JUDGMENT DATE : 2 April 2002 Permanent Trustee Australia Limited - First Applicant PARTIES : Permanent Trustee Company Limited - Second Applicant FAI General Insurance Company Limited - Respondent JUDGMENT OF : Barrett J COUNSEL : Mr J.T. Svehla - Applicants Mr G. Scarcella, Solicitor - Liquidators SOLICITORS : Church & Grace - Applicants Blake Dawson Waldron - Liquidators CATCHWORDS : CORPORATIONS - winding up - leave to proceed against company in liquidation - exercise of special leave to appeal to High Court - no other avenue available to vindicate applicants' supposed rights - other factors also favour grant of leave to proceed LEGISLATION CITED : Corporations Act 2001 (Cth) Capita Finance Group Ltd v Rothwells Ltd (1989) 15 ACLR 348 Ogilvie-Grant v East (1983) 7 ACLR 669 CASES CITED : Re Coastal Constructions Pty Ltd (1994) 13 ACSR 329 Re Sydney Formworks Pty Ltd [1965] NSWR 646 Vagrand Pty Ltd v Fielding (1993) 41 FCR 550 DECISION : Leave to proceed granted - 5 - IN THE SUPREME COURT REVISED OF NEW SOUTH WALES EQUITY DIVISION BARRETT J TUESDAY 2 APRIL 2002 1808/01 - FAI GENERAL INSURANCE CO LIMITED JUDGMENT 1 The applicants, Permanent Trustee Australia Limited and Permanent Trustee Company Limited, seek leave under s.471B of the Corporations Act 2001 (Cth) to prosecute in the High Court of Australia proceedings against FAI General Insurance Co Limited ("FAI"), a company in liquidation. Special leave to appeal from a decision of the Court of Appeal of this court was granted to the present applicants by the High Court on 15 March 2002. It is that appeal to the High Court that the applicants wish to pursue. 2 FAI was successful both at first instance and in the Court of Appeal in resisting claims in respect of professional indemnity insurance brought by the present applicants. The proceedings concerned alleged breaches by the applicants of the duty of disclosure owed by an insured and alleged misrepresentations by them. The sum in issue is said to be at least $15 million. The proceedings in the Court of Appeal had been determined before commencement of the winding up of FAI. 3 Section 471B says that where a company is being wound up in insolvency or by "the Court", a person cannot begin or proceed with a proceeding "in a court" except with the leave of "the Court". Having regard to the meanings given by s.58AA, via s.9, to "court" with a small "c" and "Court" with a capital "C" and to the fact that "winding up in insolvency", which occurs by virtue of an order of "the Court" (see s.459P), is recognized by the s.9 definition of "winding up by the Court" as a species of "winding up by the Court", it is plain that the proceedings in relation to which the prohibition upon proceeding without leave applies are proceedings in any court whatsoever; but that the court from which the necessary leave is to be obtained is the court by which the order for winding up was made. This is consistent with the position under earlier statutes: see, for example, the observation of McLelland CJ in Eq in Re Sydney Formworks Pty Ltd [1965] NSWR 646 that "the Court administering the liquidation may give leave". That, in the present case, is this court. 4 The applicants say that leave under s.471B allowing them to pursue the High Court appeal should be granted for a number of reasons. Perhaps the most compelling is that, in light of the decision of the Court of Appeal, the applicants do not appear to have any provable debt or claim which they could pursue in the winding up of FAI in the normal way. At this stage, all they have, by virtue of the grant of special leave, is the opportunity to pursue an appeal that may or may not establish that some liability is owed to them by FAI. The normal principle is that stated by McPherson J (with whom Wanstall CJ and Sheahan J concurred) in Ogilvie-Grant v East (1983) 7 ACLR 669: "The effect of [the equivalent of s.471B] 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." 5 I am satisfied that such justification is provided by the applicants' position as already described. Any proof of debt the applicants lodged would be rejected virtually as a matter of course because the effect of the orders of the Court of Appeal is to deny any provable debt or claim. The applicants cannot obtain from the liquidator the relief they seek. They have no way of vindicating their position (or the position to which they consider themselves entitled) except through the High Court appeal and, in that respect, their position is similar to that occupied by the successful applicants for leave of this kind in Vagrand Pty Ltd v Fielding (1993) 41 FCR 550. 6 A second consideration of particular significance is that, as is testified by the grant of special leave, there is a distinct measure of plausibility to the applicants' claims. As Rogers CJ in Comm D pointed out in Capita Finance Group Ltd v Rothwells Ltd (1989) 15 ACLR 348, s.471B serves a purpose of protecting liquidators from involvement in court proceedings which may perhaps only of nuisance value or which may be thought to be totally devoid of substance. The grant of special leave demonstrates that there is no such issue here. 7 I note from the transcript of proceedings in the High Court upon the hearing of the application for special leave (Gleeson CJ and Gummow J) an expectation that the appeal will be confined to consideration of questions of law by reference almost solely to the judgments in the Court of Appeal. The applicants' solicitor has given evidence of his expectation that the appeal will take no more than two days to be heard and may be concluded in one day. These factors indicate that the financial and logistical task of FAI as respondent should not involve a major drain on resources which, by and large, should be husbanded in the interests of creditors. 8 It is also relevant that the managing director of each of the applicants deposes that he has reason to believe that FAI is insured under contracts of reinsurance issued by Lloyds underwriters against liability to pay amounts to the applicants under the policies the subject of the appeal. The existence of insurance which may mitigate the impact of a judgment upon the resources in the hands of the liquidator is, of course, a positive factor when it comes to the question whether leave to proceed should be granted: see, for example, Re Coastal Constructions Pty Ltd (1994) 13 ACSR 329. 9 The liquidators' position is that they neither consent to nor oppose the present application. The liquidators also recognize that, even assuming that a proof of debt could be lodged (which, as already discussed, is not the case), adjudication of any such proof would almost inevitably become a matter for this court in any event. This is, I think, another way of acknowledging the general desirability of having a known source of possible liability dealt with in proceedings which will provide an authoritative resolution once and for all. 10 When this court granted leave to the applicants to pursue their application for special leave to appeal to the High Court, an order was made which had the effect that the applicants were required to pay FAI's costs of the special leave application, whatever its result. I do not consider that approach to be appropriate on this occasion. The High Court will determine the rights and obligations of the parties in the usual way, including, no doubt, as to any order for costs. It is not desirable that this Court should seek in some prospective way to change the incidence of whatever costs orders the High Court may make. 11 The applicants have made out a sufficient case for the grant of the leave they seek. The order of the court is therefore that leave be granted to Permanent Trustee Australia Limited and Permanent Trustee Company Limited to prosecute, in exercise of special leave to appeal granted by the High Court of Australia on 15 March 2002, an appeal to the High Court of Australia against the decision of the Court of Appeal delivered on 12 March 2001 in proceedings CA40332/98. I direct that this order may be taken out forthwith. 12 As for the costs of today, the stance taken by the liquidators makes it appropriate that each party should pay its own costs. ********** Last Modified: 04/04/2002 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.