Saunders v Applied Contract Engineering [2006] NSWSC 542

New South Wales Supreme Court

CITATION : Saunders v Applied Contract Engineering [2006] NSWSC 542

HEARING DATE(S) : 29 May 2006

JUDGMENT DATE : 29 May 2006

JURISDICTION : Equity

JUDGMENT OF : Austin J

EX TEMPORE JUDGMENT DATE : 05/29/2006

DECISION : Leave granted

CATCHWORDS : CORPORATIONS - winding up - leave to proceed against company in winding up - claim for damages arising out of sinking of yacht manufactured by company - delay until conclusion of Coroner's Inquest - assets distributed - prospect of insurance claim

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 500, 562

Hewlett Packard Australia Pty Limited v Siltek Holdings Pty Limited [2005] NSWSC 672 CASES CITED : Re Summit Design & Construction Pty Limited (1995) 33 ACSR 301 Vagrand Pty Limited (In Liq) v Fielding (1993) 41 FCR 550

PARTIES : Alan Saunders and Auriol Saunders (P/A) Applied Contract Engineering Pty Ltd (D)

FILE NUMBER(S) : SC 2882/06

COUNSEL : M G McHugh (P/A)

SOLICITORS : Piper Alderman (/P/A) Gregory J Shilton & Co (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

AUSTIN J

MONDAY 29 MAY 2006

2882/06 ALAN SAUNDERS & ANOR V APPLIED CONTRACT ENGINEERING PTY LTD ACN 005 361 373 JUDGMENT (Ex tempore; revised 30 May 2006) 1 HIS HONOUR: This is an application under s 500(2) of the Corporations Act 2001 (Commonwealth) by which the plaintiffs seek leave to proceed against the defendant company in liquidation, by means of a Statement of Claim which they propose to file. The liquidator of the defendant, Gregory Shilton, appears today and consents to the application. 2 The plaintiffs are the owners of a yacht known as "Excalibur". In May 2000 the defendant and the plaintiffs entered into a contract for the defendant to construct the vessel and her components, including her keel. The yacht was constructed and delivered to the plaintiffs on about 19 August 2002. 3 While the vessel was making her way south in waters off Port Stephens, her keel detached and she capsized. Four people died and two were subsequently rescued. The vessel was salvaged and towed to Sydney Harbour, where she subsequently was declared by the plaintiffs and their marine hull insurer as being incapable of economic repair. 4 There was a Coroner's Inquest, and the Coroner reported on 16 December 2005. The plaintiffs and the defendant (as well as its employees) were represented before the Coroner. The Coroner concluded that the cause of the capsizing of the yacht was the loss of her keel. He found that the defendant was responsible for the construction of the keel and that the defendant, by its servants, had cut the vessel's keel during the construction. She found that the vessel's keel had not been constructed in accordance with accepted engineering standards or the standards of the American Bureau of Shipping as in force at the time. 5 The plaintiffs now seek to commence proceedings in this Court against the defendant and others, pleading causes of action in tort, contract, and contravention of Victorian and Commonwealth consumer protection legislation. 6 The defendant was placed in voluntary administration and there was a deed of company arrangement, but on 26 October 2001 the creditors resolved that the deed be terminated and that the company be wound up. Mr Shilton was appointed liquidator. 7 The plaintiffs have not lodged a proof of debt in the defendant's winding up. In his most recent Form 524 "Presentation of Accounts and Statement by Liquidator", dated 17 November 2004, Mr Shilton indicated that the defendant has no further assets available to it for distribution to unsecured creditors or otherwise. 8 The plaintiffs seek leave to commence proceedings, notwithstanding the defendant's lack of assets, because there is a prospect that the defendant may be entitled to indemnity from CGU Insurance in respect of any liability that it may have to the plaintiffs (a payment available to the plaintiff under s 562). 9 The principles governing the granting of leave to initiate proceedings against a company in liquidation are clear. The fact that the company's liquidation has been proceeding for a substantial amount of time is not necessarily an obstacle, as I shall explain. The plaintiffs must show, to the standard indicated in such cases as Vagrand Pty Limited (In Liq) v Fielding (1993) 41 FCR 550, that they have a good cause of action on the merits against the defendant. In that case, the Court said that that it must be affirmatively satisfied that the claim has a solid foundation and gives rise to a serious dispute. I am satisfied on the evidence before me that the standard is met here. 10 It is necessary for the plaintiffs to show that the granting of leave will not cause undue prejudice to the other creditors of the defendant. This is clearly so in the present case, since the assets of the company in liquidation have been distributed. 11 The plaintiffs must show that the claim is one that is properly dealt with by a judgment of the Court and not in the ordinary way by proof of debt in the winding up. As Barrett J said in Hewlett Packard Australia Pty Limited v Siltek Holdings Pty Limited [2005] NSWSC 672 at [6]: "Unless there is some good reason for the contrary, claims against companies in liquidation should normally be pursued by means of a proof of debt under the system that permits appeal to the Court against the liquidator's decision". 12 Here, however, given that the assets have been distributed and the purpose of the application is to permit proceedings to be taken to which the defendant's insurer may respond, in my view the proof of debt procedure is no longer appropriate, if ever it was, and the correct course is the application that is before me now. 13 The Court is always concerned when an application is made a substantial period of time after the commencement of the winding up. In the present case, however, it was reasonable for the plaintiffs to await the determination of the Coroner's Inquest before making their application. The Coroner's Inquest was completed by the Coroner's report on 16 December 2005, and by that time such assets as there were in the winding up had been distributed. In the present case delay is not a foundation for refusing leave. 14 I was referred to authorities for the proposition that where the claim sought to be brought against the company would prove difficult for the liquidator to assess and determine in response to a proof of debt, the appropriate course is to grant leave for proceedings to be taken. In view of the reasons I have just given, it is unnecessary for me to consider the application of such cases here. 15 In his submissions counsel noted that there is authority that leave ought to be granted (subject to conditions) where the commencement of proceedings is necessary to avoid the expiration of a statutory limitation period, citing Re Summit Design & Construction Pty Limited (1995) 33 ACSR 301 at 306. In my view, that principle is applicable to the facts of this case, I agree with counsel that the Summit Design & Construction case itself is to be distinguished, to the extent that conditions were imposed on the granting of leave in that case, given that here there is no evidence that the plaintiffs seek to undermine the statutory regime for the proof and ranking of debts. 16 I shall therefore make the order sought in para 1 of the originating process. **********