New South Wales Supreme Court CITATION : Parkview Qld Pty Ltd v Fortia Funds Management Limited (in liquidation) [2010] NSWSC 1469 HEARING DATE(S) : 14 December 2010 JUDGMENT OF : Hammerschlag J EX TEMPORE JUDGMENT DATE : 14 December 2010 DECISION : Leave granted to the plaintiff to continue these proceedings against the defendant. No steps are to be taken by the plaintiff to enforce any judgment against the defendant without first obtaining the leave of the Court. Leave to amend the Summons and Commercial List Statement CATCHWORDS : CORPORATIONS – Corporations Act 2001 (Cth) ss 500, 553(1) – leave to continue proceedings against a company under a winding up order where relief sought is not capable of being dealt with by the proof of debt procedure and will be opposed – HELD – leave granted – leave to amend also granted Building and Construction Industry Payments Act 2004 (QLD) LEGISLATION CITED : Trade Practices Act 1974 (Cth) Corporations Act 2001 (Cth) CATEGORY : Procedural and other rulings Vagrand Pty Ltd (in liq) v Fielding (1993) 10 ACSR 373 CASES CITED : Ogilvie-Grant v East Liquidator of Gordon Grant and Grant Pty Ltd (1983) 7 ACLR 669 Meehan v Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSR 123 PARTIES : Parkview Qld Pty Ltd - Plaintiff Fortia Funds Management Limited (in liquidation) as trustee for the Dalgety Apartments Townsville Trust - Defendant FILE NUMBER(S) : SC 2010/117243 COUNSEL : T.G.R. Parker SC with A.R.R. Vincent [Plaintiff] R.M.O'Brien [Defendant] SOLICITORS : Salim Rutherford Lawyers [Plaintiff] Carl Lee Solicitor [Defendant] - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST HAMMERSCHLAG J 14 DECEMBER 2010 2010/117243 PARKVIEW QLD PTY LTD V FORTIA FUNDS MANAGEMENT LTD AS TRUSTEE FOR THE DALGETY APARTMENTS TOWNSVILLE TRUST JUDGMENT 1 HIS HONOUR: On 21 June 2007, the plaintiff (as trustee of the Dalgety Apartments Townsville Trust) entered into a written contract as principal with the defendant as contractor for the construction of an apartment project in Townsville for a contract price of $45,000,000 plus GST ("the contract"). 2 Clause 5 of the contract required the plaintiff to provide security and performance undertakings for the purpose of ensuring the due and proper performance of its obligations under the contract. 3 Under cl 5.2 of the contract read with Annexure Pt A, the plaintiff was to provide security to a maximum of 5 per cent of the contract sum, that is $2,475,000 including GST. The contract entitled the defendant to deduct retention monies, the amount of the retention to reduce the security to be provided by the plaintiff. 4 Under cl 5.8, upon the issue of the Certificate of Practical Completion, the defendant's entitlement to security and retention monies was reduced to 50 per cent. The provision provided further that the defendant "shall release security and retention monies in excess of the entitlement within 14 days of the entitlement being so reduced". 5 In compliance with its obligations to provide security, the plaintiff established in favour of the defendant, a bank guarantee by the Australia and New Zealand Banking Group Ltd for $1,2000,000 ("the bank guarantee"). The balance of security to be provided by the plaintiff was constituted by retention monies withheld (and supposedly still held by the defendant). 6 The defendant apparently financed the development by borrowing funds from the Bank of Western Australia Ltd ("the Bank"). 7 By fixed and floating charge executed on or about 14 March 2006, the defendant charged in favour of the Bank as security for its obligations all of its assets and undertakings which included its interest in any security held by it pursuant to the contract. 8 Sometime in 2008 the Bank (referred to as Mortgagee), the plaintiff (referred to as Builder) and the defendant (referred to as Borrower) entered into an instrument entitled Builder Tripartite Deed ("the Deed"). 9 Clause 1.1 of the Deed defines "Contract Security" to mean: any and all forms of security granted to the Borrower by or on behalf of the Builder in order to secure the Builder's obligations under the Building Contract (including, without limiting, retention of progress payments, bank guarantees, bonds, security deposits, charges or other Encumbrances); 10 Clause 11 of the Deed headed "Building Contract Security" provides as follows: (a) ( assignable ): The Builder and the Borrower acknowledge and agree that any Contract Security shall be assignable to the Mortgagee. (b) ( mortgagee obtain benefit of Contract Security ): In the event that any Contract Security is not assignable to the Mortgagee, for whatever reason, the Builder and Borrower both covenant to do all such acts, at the expense of the Borrower, as required by the Mortgagee to enable the Mortgagee to obtain all the benefits, proceeds, moneys, rights and powers conferred on the Borrower in respect of the Contract Security. (c) The Borrower and Builder shall, if so required by the Mortgagee, within ten (10) days of a request to do so from the Mortgagee, assign to the Mortgagee without payment: (i) the benefit of any Contract Security; or (ii) any agreement for the supply of materials or goods or for the execution of any work for the purposes of the Building Contract. For the purpose of executing such assignment only the Builder and the Borrower hereby irrevocably appoints the Mortgagee to be their true and lawful attorney with full power and authority to execute such assignment on behalf of the Builder and to bind the Builder and the Borrower. 11 On 7 May 2010, the defendant gave notice that it intended to call on the bank guarantee. 12 On 11 May 2010, the plaintiff moved the Court for an injunction restraining the defendant from calling on the bank guarantee. Against the usual undertaking as to damages, by consent and without admissions, an injunction was ordered and it remains on foot. By its Summons as presently framed, the plaintiff seeks a declaration that the defendant is not entitled to have recourse to the security provided by the plaintiff, and a permanent injunction restraining the defendant from calling on the bank guarantee. 13 Practical Completion of the project was reached on 14 May 2010 and so certified on 18 May 2010. 14 On 28 May 2010, the plaintiff obtained an adjudication determination in its favour against the defendant for $1,933,636 under the Building and Construction Industry Payments Act 2004 (QLD). 15 On 18 June 2010, the defendant cross-claimed in these proceedings for an order that the plaintiff pay to it $995,775.18 as monies had and received and for an order pursuant to s 80 of the Trade Practices Act 1974 (Cth) prohibiting the plaintiff from taking steps to enforce the adjudication determination. That cross-claim has, however, been discontinued. 16 On 13 August 2010, the Bank, acting under its charge, appointed Messrs Stephen Parbery and Christopher Hill to be receivers and managers of the defendant. 17 On 20 September 2010, the defendant (which was then and is now insolvent) resolved that it be wound up and that Mr Cliff Sanderson be appointed as liquidator ("the liquidator"). 18 The amount of the adjudication determination in favour of the plaintiff has not been paid but its claim has been admitted to proof in the winding up. 19 On 30 September 2010, the liquidator reported to creditors. His report is in evidence. Amongst others he states that it is not yet clear whether there will be any surplus available to the Trust after the sale of relevant properties and the payment of the debt to the Bank. The report contains a list of creditors and amounts. However, the amount of the Bank's claim is described as "not available". There was no evidence establishing that the Bank is in fact a creditor of the defendant. 20 Against this background, by motion dated 6 December 2010 the plaintiff moves for an order that leave be granted for it to continue these proceedings against the defendant in liquidation and for leave to file an Amended Summons and an Amended Technology and Construction List Statement. The amendment seeks to introduce prayers in effect for the delivery up or cancellation of the security provided by the plaintiff. 21 Initially, leave to proceed was ostensibly opposed by the defendant on the grounds that it had no funds (so that the proceedings were presumably of no utility), that the bank guarantee was charged to the Bank, that the bank guarantee was not in the defendant's but in the Bank's possession and that the Bank should be but has not been joined as a party to the proceedings. 22 In support of its initial opposition to the grant of leave the defendant read an affidavit of Paul Gunson sworn 10 December 2010. He was cross-examined. He is a representative of PPB Advisory, the firm of which Messrs Parbury and Hill (the receivers and managers) are principals. Neither the liquidator nor any representative from his office was present in Court. To my observation opposition to the grant of leave was left entirely in the hands of the Bank and its lawyers and I was not satisfied that the liquidator had himself instructed that leave to proceed be opposed. 23 After some discussion with counsel for the defendant, opposition to the grant of leave to proceed was, with good cause, withdrawn. 24 For the reasons which follow I am satisfied that this is an entirely appropriate case for the grant of leave to proceed. 25 The pleading amendment sought may in due course require joinder of the Bank to these proceedings, but that does not affect the fact that leave to amend is also entirely appropriate, and I propose to grant it. 26 Section 500 of the Corporations Act 2001 (Cth) ("Corporations Act") is in the following terms: 500 Execution and civil proceedings (1) Any attachment, sequestration, distress or execution put in force against the property of the company after the passing of the resolution for voluntary winding up is void. (2) After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes. (3) The Court may require any contributory, trustee, receiver, banker, agent, officer or employee of the company to pay, deliver, convey, surrender or transfer forthwith or within such time as the Court directs to the liquidator any money, property or books in his, her or its hands to which the company is prima facie entitled. 27 Section 553(1) of the Corporations Act is in the following terms: 553 Debts or claims that are provable in winding up (1) Subject to this Division and Division 8, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company. 28 The purpose of the prohibition against commencing proceedings against a company in liquidation is to avoid the multiplicity of proceedings when the appropriate procedure is to lodge a verified proof of debt with the liquidator. The onus is on the claimant to demonstrate why leave should be granted. The plaintiff must satisfy the Court that its claim has a solid foundation and gives rise to a serious dispute, sometimes termed "a serious issue to be tried". Factors relevant to the exercise of the discretion may include but are not limited to the degree of recollection of the Corporations Act and the issues involved, the prospects that a proof of debt will be rejected, and the stages to which the proceedings, if already commenced, may have progressed. See: Vagrand Pty Ltd (in liq) v Fielding (1993) 10 ACSR 373; Ogilvie-Grant v East Liquidator of Gordon Grant and Grant Pty Ltd (1983) 7 ACLR 669 ; Meehan v Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSR 123. 29 In Ogilvie-Grant v East Liquidator of Gordon Grant and Grant Pty Ltd at 671-2, McPherson J with whom Campbell CJ and Sheahan J agreed said the following of s 230(3) of the Companies Act 1961 (Qld) (which is a provision similar to s 500 of the Corporations Act): The precise purpose and function of provisions similar to s 230(3) have seldom been explained. From time to time the suggestion has been made that the prohibition exists in order to effectuate the statutory policy of ensuring that corporate assets are distributed rateably amongst all creditors so that none of them will gain an advantage over others: see eg Re Sydney Formworks Pty Ltd [1965] NSWR 646, 649–50. But in Australia at least it is not often that the institution of proceedings or even the recovery of judgment operates to confer a priority or advantage on a litigating creditor. A more convincing explanation is that, without the relevant restriction, a company in liquidation would be subjected to a multiplicity of actions which would be both expensive and time-consuming, as well in some cases as unnecessary. This explanation has been accepted in a number of Canadian cases and appears also to have been adopted by Street J in Re A J Benjamin Ltd (1969) 90 WN (NSW) 107, 109. It is consistent with this that there should be no automatic prohibition upon proceedings against a company in members' voluntary winding up, where the company is solvent and therefore less likely to be the target of numerous actions. 30 The relief which the plaintiff seeks in the proceedings is not properly capable of being dealt with by the proof of debt procedure and it is self-evident that it will be opposed. Clearly it involves a serious issue to be tried. 31 Leave is granted to the plaintiff to continue these proceedings against the defendant. No steps are to be taken by the plaintiff to enforce any judgment against the defendant without first obtaining the leave of the Court. 32 Leave is granted to the plaintiff to file an Amended Summons and an Amended Technology and Construction List Statement in the form which I have initialled and dated today's date. 33 His Honour then made directions with respect to dealing with the issue of costs. ********** 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.