Josia v Horvat Constructions [2004] NSWSC 1252

New South Wales Supreme Court

CITATION : Josia v Horvat Constructions [2004] NSWSC 1252 HEARING DATE(S) : 16 December 2004 JUDGMENT DATE : 16 December 2004 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Leave to proceed granted, on conditions

CATCHWORDS : CORPORATIONS - application for leave under section 444E Corporations Act 2001 (Cth) to commence proceedings against company subject to Deed of Company Arrangement - effect of moratorium provision in deed on whether court can grant leave to proceed against company - effect of bar provision in deed on whether court can grant leave to proceed against company - factors relevant to granting of leave LEGISLATION CITED : Corporations Act 2001 (Cth) Home Building Act 1989 PARTIES : Josia Pty Limited - Plaintiff Horvat Construction Pty Limited (Subject to Deed of Company Arrangement) - Defendant FILE NUMBER(S) : SC 5825/04 COUNSEL : MF Galvin - Plaintiff No appearance - Defendant SOLICITORS : Lane & Lane - Plaintiff No appearance - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST

CAMPBELL J

THURSDAY 16 DECEMBER 2004

5825/04 JOSIA PTY LIMITED v HORVAT CONSTRUCTION PTY LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) JUDGMENT – Ex Tempore 1 HIS HONOUR: This is an application for leave under section 444E of the Corporations Act 2001 (Cth) to commence proceedings by way of a cross-claim against a company which is subject to a deed of arrangement. The plaintiff is a company which was the developer of a block of home units at 6 Carlotta Road, Double Bay. It engaged the defendant company to act as builder of those home units. 2 The building contract was entered into in June 1997, and the building was practically completed in August 1999. While construction was still underway some rust spots were noticed by the architect. 3 Various of the owners of home units in the building commenced proceedings in the District Court in March 2003. They sue the architect who designed the building, and also the present plaintiff, the developer. They allege negligence against the architect and allege that they have a right to enforce statutory warranties arising under the Home Building Act 1989 against the developer. The present plaintiff seeks to cross-claim against the builder in those proceedings. 4 The builder was insured by HIH Casualty and General Insurance Limited. That company has, of course, become insolvent. Of more reason times, the plaintiffs in the District Court action have joined a third defendant, the Building Insurers' Guarantee Corporation. The claim against the Building Insurers' Guarantee Corporation in the District Court is to enforce, under the provisions of Part 6A of the Home Building Act 1989, the claims which could have been brought against the builder. 5 The builder became the subject of voluntary administration in December 2000. On 16 February 2001 a deed of company arrangement was entered into concerning the builder. That deed makes provision for the establishment of a Deed Fund, which consists of any proceeds of recovery made from certain pieces of litigation, and a share of the proceeds of certain building projects, and provides for its distribution among creditors. There is provision in clause 12 for a moratorium whereby any creditor cannot take any step in litigation to which the creditor would not have been entitled had the company been wound up at the appointed date (which means 22 December 2000). 6 The deed operates, under clause 16, as a bar to all creditors' claims, whether or not admitted or established under the deed. The bar in the clause operates by reference to a defined term "Debt", which is defined as including unliquidated claims, such as those the plaintiff wishes to make in its cross-claim against the builder. 7 The present applicant does not know what the state of administration of the Deed Fund is, or whether there is any money left in the Deed Fund. The administrator of the Deed Fund has been served and has not appeared. 8 One argument which was advanced in correspondence by the administrator of the Deed Fund, was that the moratorium and bar provision in the deed would effectively prevent any proceedings being brought. I do not accept that is so. The moratorium provision in the deed prevents only actions which could not have been taken if the company had been wound up. If the company had been wound up, action could still have been taken against it with the leave of the Court. The bar provision would need to be read with section 444E of the Corporations Act 2001 (Cth), which expressly allows for the possibility that proceedings can be begun against a company the subject of a deed of administration with the leave of the Court. A deed cannot oust that power of the Court. 9 It seems to me preferable, in these circumstances, to grant the leave to proceed. It is a matter which, no doubt, the deed administrator will take into account in deciding whether to take any action at the present time to defend the cross-claim which is brought, whether there is any money left in the Deed Fund, and if so how much. 10 The proceedings in the District Court are ones which involve numerous other parties, and the issues involved in them are complex. In consequence, it is unclear at this stage what, if any, liability might be sheeted home to the developer in the District Court proceedings. It is also unclear whether, if liability were to be sheeted home to the developer in the District Court proceedings, that it is a liability which, on a proper allocation of the risks, will end up being borne by the Builders Insurers' Guarantee Corporation. These are not the sort of issues which a deed administrator could fairly be expected to sort out upon a claim for a right to participate in the Deed Fund. 11 I will grant leave to commence proceedings by way of cross-claim against the defendant in proceedings number 912 of 2003 in the District Court of New South Wales at Sydney, subject to the conditions: