Marshall v Proteus Solutions Limited (In liq) [2006] NSWSC 994

Reported Decision : 162 IR 135

New South Wales Supreme Court

CITATION : Marshall v Proteus Solutions Limited (In liq) [2006] NSWSC 994

HEARING DATE(S) : 29 August 2006

JUDGMENT DATE : 29 August 2006

JURISDICTION : Equity Division

JUDGMENT OF : Palmer J

EX TEMPORE JUDGMENT DATE : 08/29/2006

DECISION : Leave to proceed granted.

CATCHWORDS : CORPORATIONS – LIQUIDATION – LEAVE TO PROCEED – whether leave to proceed against company in liquidation should be refused, thereby frustrating proceedings between Plaintiff and third party – terms upon which leave should be granted.

LEGISLATION CITED : Corporations Act 2001 (Cth) – s.500(2), s.502 Industrial Relations Act 1996 (NSW) – s.106

Bruce Marshall – Plaintiff PARTIES : Proteus Solutions Limited (In liquidation) – Defendant Patricia Sneddon – Third party

FILE NUMBER(S) : SC 4551/06

Phillips – Plaintiff COUNSEL : No appearance – Defendant Ms M.A.C. Painter, Ms M.B. Britt – Third party

Baker & McKenzie – Plaintiff SOLICITORS : No appearance – Defendant ERA Spinks Legal – Third party

1 By Notice of Motion the Plaintiff, Mr Marshall, seeks an order granting leave nunc pro tunc pursuant to s.500(2) of the Corporations Act 2001 (Cth) to continue with a proceeding against the Defendant, Proteus Solutions Limited (In liquidation) in the Industrial Court of New South Wales. The application is opposed by a director, or former director, of Proteus Solutions, Ms P. Sneddon, who is the Second Respondent in the Industrial Court proceedings. 2 The relevant facts and circumstances may be very briefly summarised. Mr Marshall entered into a contract of employment with Proteus Solutions. That contract was later terminated. Mr Marshall seeks in the Industrial Court proceedings an order under s.106 of the Industrial Relations Act 1996 (NSW) varying certain terms of that contract on the basis that they are harsh and unconscionable. He also seeks orders for the payment of money by the Second Respondent in those proceedings, Ms Sneddon, in the event that the company is unable to satisfy any order for the payment of money made against it. The structure of the relief sought is, in essence, set out in paragraphs 1 to 6 of the Amended Summons which has been filed in the Industrial Court. 3 As Proteus has been placed in a voluntary liquidation, one would assume that it will be unable to pay any substantial claim which Mr Marshall may succeed in establishing against it in the Industrial Court. 4 The object of Ms Sneddon's opposition to this application is manifest and Ms Painter of Counsel, who appears with Ms Britt of Counsel for Ms Sneddon, has made no secret of it. It is this: because Proteus is a party to the contract which is the subject of the s.106 proceedings in the Industrial Court, it is a necessary party to that litigation. CA s.500(2) prevents Mr Marshall from continuing with the Industrial Court proceedings against Proteus unless he obtains the leave of this Court. Accordingly, if the leave of this Court is refused, that circumstance, in itself, will bring to an end the whole of the proceedings in the Industrial Court without a hearing on their merits. 5 Ms Painter relies on two grounds of opposition to the granting of leave under s.500(2). The first is that to grant leave will necessarily involve Proteus in the conduct of the Industrial Court proceeding so that the administration of the liquidation will be unduly protracted. The second ground is that various costs consequences may flow as a result of the Industrial Courts proceedings, one of them possibly being that Ms Sneddon may wish to make an application in the proceedings for a costs order against Proteus. The possibility that this may occur in itself complicates the administration of the liquidation, says Ms Painter, and will probably result in the administration of the liquidation being delayed until the Industrial Court proceedings are finally concluded. 6 I should add Ms Painter also points to Clause 6 of a deed of release between Mr Marshall and Proteus dated 3 May 2004, which provides as follows: "Subject to PS complying with the obligation contained in clause 2, Marshall covenants that in the event of the NSW Industrial Relations Commission making any financial order against PS with respect to the Application, he will refrain from submitting or seeking to submit any proof of debt against PS, where such a proof of debt is based upon any financial order made by the NSW Industrial Relations Commission against PS, pursuant to the Application." 7 Ms Painter submits that the terms of that deed do not adequately protect Proteus from the consequences of the litigation in the Industrial Court so that, if the leave now sought is granted, the liquidation administration may be delayed. 8 In my opinion, in this case leave should be granted under s.502. If leave were refused at this stage then a substantial claim between Mr Marshall and Ms Sneddon would be frustrated in the sense that a hearing on the merits would be denied. 9 I do not need to enter at all into the substance of the claim between Mr Marshall and Ms Sneddon. It is clear that the claim by Mr Marshall against Ms Sneddon is of a derivative nature in that Mr Marshall must first establish that the contract between himself and Proteus is unfair so as to attract the jurisdiction of the Industrial Court under s.106. Then and only then may the Court make orders of a consequential nature against Ms Sneddon. It is also clear that Mr Marshall, realising the futility of endeavouring to obtain satisfaction of any judgment against Proteus, intends to recover whatever he is entitled to recover as a result of the Industrial Court proceedings, from Ms Sneddon. 10 The terms of the deed of release may or may not be satisfactory to achieve the full protection which Proteus should have against the consequences of the Industrial Court litigation on the administration of its winding up. However, I do not need to rely upon the terms of the deed of release alone for that protection. 11 Under CA s.500(2) the Court may give leave for the continuation of these proceedings "subject to such terms as the Court imposes" . It is frequent in cases of this nature for the Court, as a condition of granting leave, to impose terms designed to prevent the claimant enforcing against the company any order resulting from the proceedings which would interfere unduly in the administration of the liquidation. 12 It seems to me, therefore, that in this case I should grant leave under the section but I should impose as a condition upon that leave a term that Mr Marshall will not endeavour to prove in the liquidation of the company in respect of any claim arising out of the proceedings in the Industrial Court, nor will he object to any distribution to creditors from the company prior to completion of the proceedings in the Industrial Court. If those protections are put in place, then I cannot see that the administration of the liquidation will be unduly impeded in any way by the continuance of the litigation essentially between Mr Marshall and Ms Sneddon. In this regard I note that the liquidator of the company appears and neither opposes nor consents to the Plaintiff's application. 13 Before finally concluding the reasons for judgment, I should just make an observation about the possibility of a costs order being obtained by Ms Sneddon against the company as a result of the Industrial Court proceedings. It would seem to me that that possibility should not impede the granting of leave to the Plaintiff in the present case nor should it impede the litigation. 14 It seems to me that if Ms Sneddon wishes to make any sort of claim against Proteus in the Industrial Court proceedings then she also will have to obtain the leave of this Court under s.500(2). I have no doubt that if she applied to this Court for leave to seek a costs order, the Court would not grant that leave except upon such terms as would ensure that the administration of Proteus was not impeded and that Ms Sneddon was not advantaged at the expense of other creditors. 15 However, all of this is only a possibility at this stage and seems to be a rather academic and sterile possibility, bearing in mind the insolvency of Proteus. 16 For those reasons, I do not consider that the possibility of the costs order being sought by Ms Sneddon is of such concern as should affect the decision to which I have come. 17 The costs order which I will make, which will be reflected in the Short Minutes, is that the costs of this application as between Mr Marshall and Ms Sneddon will abide the result in the Industrial Court proceedings. – oOo –