Alemany Pty Ltd v Bewick, Bewick, Guppy & Guppy No. DCCIV-96-203 Judgment No. D3598

[1997] SADC 3598

Court

DISTRICT COURT OF SOUTH AUSTRALIA

Judgment of His Honour Judge Anderson

Hearing

17/04/97.

Catchwords

Administrator appointed pursuant to resolution of Directors of Company - proceedings commenced without leave - application for leave nunc pro tunc - leave refused

Materials Considered

• Section 440J(1) Corporations Law ;
• Stegbar Pty Ltd v Mayfield and Another (1993) 13 ACSR 354;
• Re: Grenadier Constructions No 2 Pty Ltd (Administrator Appointed) , applied.

Representation

Plaintiff ALEMANY PTY LTD:
Counsel: Mr C McCarthy - Solicitors: Grope Hamilton Brown

Defendants MALCOLM JOSEPH BEWICK, ROBIN MARK BEWICK, CHRISTOPHER DAVID JEWELL GUPPY AND TRACEY LYN GUPPY:
Counsel: Mr P Abfalter - Solicitors: Morris Pearce &; Meister

DCCIV-96-203

Judgment No. D3598

2 May 1997

(Civil)

ALEMANY PTY LTD v BEWICK & ORS

By application, dated 13 February 1997, the plaintiff sought certain interlocutory orders in this action.Paragraph 3 of the application is in the following terms:

"That leave be granted nunc pro tunc to the plaintiff pursuant to Section 440J(1) of the Corporations Law to proceed herein."

It was this portion of the application which fell for decision.To obtain further orders, the plaintiff has obviously to succeed on this part of the application.I heard Mr McCarthy of counsel for the plaintiff and Mr Abfalter for the defendants on 17 April 1997.

The history of the dispute between the parties commences when a company, Solutions Group Australia Pty Ltd ("Solutions"), entered into a lease with the plaintiff in March 1992 for a period of five years.After rent was not paid for some time, the plaintiff re-entered the subject premises and distrained on 17 May 1995.On the previous evening, unknown to the plaintiff, Solutions, by its directors, resolved to appoint Anthony Broome as its administrator pursuant to the provision of Part 5.3A Corporations Law.

The plaintiff company was advised of this appointment after the re-entry and distraint which I have mentioned.

Thereafter, creditors meetings were held and a Deed of Company Arrangement ("DOCA") was entered into on 4 June 1995.

The commencement of these proceedings on 16 February 1996 occurred when the DOCA was still in existence.The plaintiff was, prima facie,prohibited from so doing without leave by the provisions of Section 440(J)(1) Corporations Law which reads:

"During the administration of a company:

(a) a guarantee of a liability of the company cannot be enforced, as against:

i) a director of the company who is a natural person; or

ii) a spouse, de facto spouse or relative of such a director; and

b) without limiting paragraph (a), proceeding in relation to such a guarantee cannot be begun against such a director, spouse, de facto spouse or relative;

except with the leave of the Court and in accordance with such terms (if any) as the Court imposes."

As I have said, this application is for that leave.

That leave was necessary was drawn to the attention of the plaintiff's solicitor by Mr Meister, solicitor for the defendants, in his letter of 9 May 1996.By order of Master Berry on 16 May 1996, the defendants were excused from filing a Defence until further order awaiting the plaintiff's compliance with a Rule 46.20 Notice.A Defence was filed in October 1996.

One of several grounds Mr McCarthy mentioned in support of the application was the supposed inaction of the defendants.That is not made out.In any event, there is an absolute obligation upon a plaintiff in such circumstances to obtain leave.It is not a requirement that concerns a defendant in any way at all as the consent or otherwise of a defendant is irrelevant to the plaintiff's obligation to obtain leave.

There is no doubt, even if the plaintiff's solicitors overlooked that leave was required (as I presume), that they knew about it by mid May 1996. Surprisingly, nothing was then done until this application about nine months later and after further amended pleadings had been filed.The delay does not enhance the plaintiff's case.

Mr McCarthy also relied upon an argument fashioned out of the terms of the DOCA.Clause 27 thereof provides that it should have a life of twelve months. In the absence of any extending act, on balance, I think that Section 445C CL has acted to terminate the DOCA, time having expired before any other life extending action has occurred.

However, I do not think this helps the plaintiff.When this action was commenced, the DOCA was well short of twelve months of age and leave to proceed was required.That this application for nunc pro tunc leave is being held subsequent to that time is entirely beside the point.

Mr McCarthy further submitted that the document upon which the plaintiffs rely against the defendants, namely a written Guarantee and Indemnity entered into between the plaintiff and defendants on 2 June 1993, in fact created two sets of rights.He submitted that, firstly, the document created obligations in the defendants' contingent upon the liability of Solutions and, secondly, that it created separate rights of indemnity as between the plaintiff and defendants which were not subject to any separate obligation to be observed or performed.

In support of this submission, he relied upon the words of the document entitled "Guarantee and Indemnity" produced to me and to Clauses 1 and 2.1 at page 22 thereof in particular.

From this proposition, he submitted that leave was not necessary because the prohibition in Section 440J(1) CL referred only to "a guarantee of a liability".

The 2nd Edition of "The Modern Contract of Guarantee", Phillips & O'Donovan, at p24 considers the distinction between Guarantee and Indemnity. At p26 the learned authors say:

"In doubtful cases, the courts will decide whether the contract is one of indemnity rather than a contract of guarantee by a careful perusal of all the provisions of the agreement to ascertain if the rights of the creditor against the party entering into the contract are different in extent from those available against the debtor.Thus, the agreement will be construed as an indemnity if the contract, according to some of its clauses, operates to render the promisor liable in circumstances in which the principal is not in default, or renders the promisor liable for a greater amount than the principal"

Here the description of the document is not decisive.A consideration of the essential nature of the agreement, in my opinion, leads inexorably to the conclusion that what the plaintiff obtained from the defendants was a guarantee, irrespective of the words used to describe it.There are no rights preserved to the plaintiff outside rights contingent upon the liability of Solutions.There are none of the indicia which are necessary to show that a separate obligation, apart from the guarantee, has been created in the defendants, to the plaintiff, by this document.

Thus, I am not persuaded that the document is other than one which is well within the scope of Section 440J(1) CL.

Mr McCarthy further submitted that Section 440J(1) CL was of no application because liability has not yet crystallised and would not do so until judgment. Not surprisingly, he was unable to advance any authority for such a proposition and it collapses under its own weight.The plaintiff is seeking to enforce a liability, alleged or otherwise, and so is required to act in accordance with the law.

Finally, Mr McCarthy submitted that DCR 22 was of some relevance.I am unable to see how that can be so in such circumstances as exist here.It is not for the defendant to plead or apply in relation to a statutory obligation which is upon the plaintiff.

Mr Abfalter submitted that leave should not be granted because, inter alia, the plaintiff did not have a good case on the merits.No benefit is to be gained by traversing that submission in detail.It is not in dispute that the discretion is wide.

I respectfully agree with what fell from Williams J in Stegbar Pty Ltd v Mayfield and Another (1993) 13 ACSR 354 and in Re: Grenadier Constructions No 2 Pty Ltd (Administrator Appointed) which were both delivered in the Supreme Court of Queensland on 19 October 1993.

His Honour drew attention to the importance of the legislative scheme and required "good reason for departing from the presumption underlying the legislation that the creditor ought not be able to proceed against a guarantor ... where the company was under administration" (p354).It follows that there is an obligation upon an applicant to show that no adverse consequences would flow to an administration from the granting of leave.No attempt has been made to do that in this application.

For these reasons, the application is refused.I shall hear counsel as to consequential orders.