Corbett v Arrium Creditor Distribution Company Pty Ltd
[2017] WASC 357
•8 DECEMBER 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CORBETT -v- ARRIUM CREDITOR DISTRIBUTION COMPANY PTY LTD [2017] WASC 357
CORAM: ACTING MASTER STRK
HEARD: 4 APRIL & 25 OCTOBER 2017
DELIVERED : 8 DECEMBER 2017
FILE NO/S: COR 174 of 2016
BETWEEN: JASON MICHAEL PATRICK CORBETT
Plaintiff
AND
ARRIUM CREDITOR DISTRIBUTION COMPANY PTY LTD (FORMERLY SSX PTY LTD) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)
Defendant
Catchwords:
Corporations - Deed of company arrangement - Leave sought under s 444E(3) of the Corporations Act 2001 (Cth) to continue proceedings against a company subject to a deed of company arrangement - Substitution of defendant - Whether leave ought to be granted under s 444E(3)(c) of the Corporations Act 2001 (Cth)
Legislation:
Corporations Act 2001 (Cth), s 444E
Result:
Application granted
Category: B
Representation:
Counsel:
Plaintiff: Mr J R Brooksby
Defendant: Mr G J Pynt
Solicitors:
Plaintiff: Slater & Gordon Lawyers
Defendant: Sparke Helmore
Case(s) referred to in judgment(s):
Latimer v Cutwood Panels Pty Ltd (in liq) [2012] WASC 408
Lawless v MacKendrick [No 2] [2008] WASC 15
Mehan v Arrium Ltd (formerly Onesteel Ltd) [2016] NSWSC 1680
Re AJ Benjamin Ltd (in liq) [1969] 2 NSWR 374
Re Coastal Constructions Pty Ltd (in liq) (1994) 13 ACSR 329
Re Sydney Formworks Pty Ltd (in liq) [1965] NSWR 646
Timbercorp Finance Pty Ltd (in liq) v Vivian [2016] VSC 338; (2016) 114 ACSR 198
ACTING MASTER STRK: By an originating process filed on 8 August 2016, the plaintiff (Mr Corbett) sought leave pursuant to s 440D(1)(b) of the Corporations Act 2001 (Cth), to proceed with District Court of Western Australia CIV 2667 of 2015 (the District Court action) against Onesteel Reinforcing Pty Ltd (Onesteel), which then was a company in administration.
Mr Corbett had commenced the District Court action against his employer Adecco Industrial Pty Ltd (Adecco), and against Onesteel, for damages for injuries he allegedly sustained in an accident at work on 3 July 2013. On 7 April 2016, voluntary administrators were appointed to Onesteel pursuant to s 436A of the Corporations Act and by virtue of s 440D of the Corporations Act, the District Court action was automatically stayed as against Onesteel. No external administrator was appointed to Adecco and there was no impediment to Mr Corbett proceeding against that entity.
The question of leave under s 440D of the Corporations Act, which had been relevant at the time the originating process was filed, no longer needs to be determined. The administration of Onesteel came to an end upon the company executing a deed of company arrangement. Section 444E(3) of the Corporations Act replaced s 440D as the applicable provision. Leave under s 444E(3) was sought by Mr Corbett on the basis that no steps would be taken to enforce judgment against Onesteel without leave of the court.
The application for leave under s 444E(3) was opposed by Onesteel and was heard on 4 April 2017. In support of the application for leave, Mr Corbett relied upon the affidavit of Ms Irena Ferraro sworn 8 August 2016, and the supplementary affidavit of Ms Irena Ferraro sworn 2 September 2016. Ms Ferraro is a solicitor employed by Slater & Gordon Lawyers and has conduct of the matter on behalf of Mr Corbett.
Onesteel relied upon the affidavit of Ms Belinda Michalk affirmed on 8 November 2016, and the further affidavit of Ms Belinda Michalk affirmed on 4 April 2017. Ms Michalk is a partner of Sparke Helmore Lawyers and had conduct of the matter on behalf of Onesteel. Until the appointment of voluntary administrators, Sparke Helmore acted for Onesteel on the instructions of Onesteel. Since then, Sparke Helmore has acted on the instructions of Onesteel and its external administrators.[1] Sparke Helmore had not acted for nor taken instructions from the insurer in relation to the District Court proceedings. Ms Michalk deposed as follows:[2]
As far as I am aware, at this point in time, Vero has not decided whether to indemnify the defendant against the plaintiff's claim in the action. Even if indemnity is granted, the Vero policy includes a substantial deductible of $250,000.
[1] Affidavit of Belinda Michalk affirmed 8 November 2016 [10].
[2] Affidavit of Belinda Michalk affirmed 8 November 2016 [13].
At the conclusion of the hearing, I reserved my decision and made directions that the parties have time to file and serve further written submissions.
After receipt of further written submissions and after becoming aware of public announcements in relation to the broader Arrium group of companies and the acquisition of mining and steel businesses held by the Arrium group of companies, the Court enquired of the parties as to whether Onesteel remained subject to a deed of company arrangement and whether recent developments had any bearing on the application.
As agreement could not be reached as between the parties, the application was relisted on 25 October 2017. On that date, by consent, Arrium Creditor Distribution Company Pty Ltd (formerly SSX Pty Ltd) (subject to deed of company arrangement) (Arrium), was substituted for Onesteel as the defendant in these proceedings. The court was informed that Arrium was now also the appropriate second defendant in the District Court action (in substitution for Onesteel).
At the hearing on 25 October 2017, counsel for Arrium confirmed that assurances had been given by Arrium that the substitution of Onesteel for Arrium did not in any way impact the rights of Mr Corbett under the applicable insurance policy or otherwise. No party sought to put further evidence before the court in relation to the progress of the external administration of the Arrium group of companies. Rather, the application was to be determined on the affidavits filed, the oral submissions made on 4 April 2017 and the written submissions filed in the proceedings, including those filed after the hearing.
Background
Mr Corbett was employed by Adecco, a recruitment company. His labour was let on hire by Adecco to Onesteel, a division of the Arrium group of companies.
Mr Corbett alleges that on 3 July 2013, he was injured in an accident during the course of his employment while working under the direction of Onesteel.
By a writ issued in the District Court on 22 June 2015, Mr Corbett commenced the District Court action, seeking damages for personal injuries against Adecco and Onesteel.
On 7 April 2016, administrators were appointed to Onesteel and related companies. The administrators appointed on 7 April 2016 were replaced on 12 April 2016 by Mark Mentha, Bryan Webster, Martin Madden and Cassandra Mathews, as joint and several administrators of Onesteel and 93 related companies (together the Arrium Group).
At a second meeting of creditors on 4 November 2016, it was resolved that each of the Arrium Group, including Onesteel, would executed a deed of company arrangement, the background to which is summarised by Black J in Mehan v Arrium Ltd (formerly Onesteel Ltd),[3] as follows:
By way of background, Arrium was a listed company on the Australian Stock Exchange and the ultimate holding company of the Arrium Group. Arrium and the other companies in the Arrium Group were placed in administration and subsequently became subject to two deeds of company arrangement to which I refer below. It appears the administration was a large and complex one, involving numerous entities that conduct several businesses, assets and liabilities of very substantial size and several classes of creditors, and I note the observations of Davies J to that effect in Mentha, Re Arrium Ltd (admin apptd) [2016] FCA 487; (2016) 113 ACSR 302 at [34]‑[35]. I infer that the deed administration will be similarly complex.
The Federal Court of Australia initially extended the time for a second meeting of creditors in respect of the companies in the Arrium Group to be held to late February 2017, although that second meeting of creditors was in fact held in early November 2016. Deeds of company arrangement were executed following a second meeting of creditors held on 4 November 2016, namely the Arrium Distribution Deed of Company Arrangement and the Arrium Transaction Support Deed of Company Arrangement.
[3] Mehan v Arrium Ltd (formerly Onesteel Ltd) [2016] NSWSC 1680 [3] ‑ [4].
In the affidavit of Ms Michalk affirmed on 8 November 2016, Ms Michalk provided the following, high level, overview of the administration of the Arrium Group, drawn largely from the judgments mentioned at [14] of her affidavit and supplemented by information provided to Sparke Helmore by Trudi Shepard, an employee of Korda Mentha, working under the supervision of the administrators:[4]
[4] Affidavit of Belinda Michalk affirmed 8 November 2016 [15].
a.the Administration is a large and complex one, as it involves 94 related companies, whose interests include mining and steel manufacturing at Whyalla, South Australia, steel manufacturing, rod and bar mills, steel wire mills, reinforcing and metal product distributions at various locations around Australia.
b.the Arrium Group itself forms part of a large and complex group of companies that has complex inter-company financing arrangements.
c.to date, there are approximately 22,500 creditors of the Arrium Group and $2.8 billion of unsecured finance debt;
d.the Arrium Group contingently owes employee entitlements of approximately $620 million;
e.there are general Arrium Group creditors with claims estimated to be in excess of $500 million;
f.the Administration is expected to continue for several months;
g.having regard to the extent of the Arrium Group's debts, it appears to be very unlikely that unsecured claims will be paid in full;
h.the focus of the Administration is to ensure that the Arrium Group business is appropriately restructured to maximise the return to all stakeholders, includes a planned sale and recapitalisation process. Ensuring ongoing employment for the Arrium Group's approximately 6,000 Australian employees is also a priority;
i.there has been some difficulty in securing sufficient finance to fund expenditure during the Administration - some of these are discussed in Mentha, in the matter of Arrium Limited (administrators appointed) [2016] FCA 972;
j.owing to the size and complexity of the Administration:
i.while the Administrators are aware that there are many parties, including the Plaintiff, who assert claims against the 94 entities under administration in the Arrium Group;
ii.the Administrators are focused on the administration and proposed recapitalisation process and do not have the resources available to properly manage and address those claims, which in many cases are unsecured claims in the Administration, and associated litigation pending the conclusion of the Administration.
Ms Michalk also confirmed that as at the date of Mr Corbett's alleged accident, Arrium Ltd had in place a combined liability insurance policy, policy number LSB016745696 issued by the insurer Vero.[5]
[5] Affidavit of Belinda Michalk affirmed 8 November 2016 [12].
As explained above, after becoming aware of public announcements in relation to the broader Arrium Group and the acquisition of mining and steel businesses held by the Arrium Group, the court enquired of the parties as to whether Onesteel remained subject to a deed of company arrangement and whether recent developments had a bearing on the determination of this application. Arrium was substituted for Onesteel by consent on 25 October 2017. However, at that hearing, no party sought leave to file further affidavits, updating the court as to the financial position of the Arrium Group, the status of the proposed recapitalisation process, nor whether there remains uncertainty as to the likely quantum of dividend to unsecured creditors. It was also not made clear whether the substitution was pressed as a response to recent developments or ought to have been attended to upon execution of the relevant deeds of company arrangement on 4 November 2016.
Applicable legal principles
In Mehan v Arrium Ltd (formerly Onesteel Ltd), Black J dealt with a similar application made by a plaintiff to continue proceedings against an Arrium Group company in relation to a personal injury claim. Mr Mehan commenced proceedings in the New South Wales Supreme Court on 22 February 2013.[6] The proceedings were commenced against his employer, a labour hire company trading as Pathways, and Onesteel Ltd as second defendant to which Mr Mehan's labour had been hired out by Pathways. His Honour had to consider whether it was appropriate to allow Mr Mehan to continue his proceedings against Onesteel Ltd having regard to the provisions of s 444E of the Corporations Act. His Honour had before him the relevant insurance policy and the deed of company arrangement.
[6] The date of his actual accident does not seem to appear in the judgment.
His Honour Justice Black conveniently describes the applicable legal principles as follows:[7]
The appointment of deed administrators to Arrium has the consequence that leave to continue the proceedings is no longer required under s 440D(1)(b) of the Corporations Act, since Arrium is no longer in administration, but such leave is required under s 444E(3) of the Corporations Act which relevantly provides that, until a deed of company arrangement terminates, a person bound by a deed of company arrangement cannot proceed with a proceeding against the company, except with the Court's leave, and in accordance with any terms that the Court imposes.
Mr Mack, who appears for Arrium, rightly points out that the Corporations Act contains four provisions which deal with leave for the commencement or continuance of proceedings, namely s 440D dealing with the position when a company is in administration, s 444E dealing with the position when a company is subject to a deed of company arrangement, s 471B dealing with the position when a company is being wound up by the Court, and s 500(2) dealing with the position when a company is in voluntary administration. Mr Mack also rightly points out that s 444E of the Corporations Act is not, in terms, directed only to a stay of proceedings, but focuses upon protection of the company's property and operates only upon persons bound by the deed of company arrangement. Mr Mack also rightly points out that a deed of company arrangement will ordinarily specify the 'property' of the company and the manner in which that property is to be distributed among creditors. Mr Hart, who appears with Mr Edington for Mr Mehan, did not, in terms, accept that that Mr Mehan was bound by the deeds of company arrangement in respect of Arrium, and submitted that was not a matter which needed to be determined for the purposes of this application.
Mr Hart relies on the observations of Lehane J in Meehan v Stockmans Australian Café (Holdings) Pty Ltd (1996) 22 ACSR 123, where his Honour was dealing with the position where proceedings were commenced before a company was placed in administration and a deed of company arrangement was subsequently executed. His Honour noted that the principles to be applied in such an application were analogous to those which would be applied by a court in considering an application for leave to proceed against a company in winding up under s 471B of the Corporations Act, rather than the more stringent test that may apply in determining applications for leave to proceed against a company under administration under s 440D of the Corporations Act.
Mr Hart refers to several relevant factors which have been identified in the case law, including J F Keir Pty Ltd v Priority Management Systems Pty Ltd (admin apptd) [2007] NSWSC 748 at [8] and Attard v James Legal Pty Ltd [2010] NSWCA 311; (2010) 80 ACSR 585 at [146], including whether the plaintiff's claim has a solid foundation and gives rise to a serious dispute; whether the proceedings have progressed to an advanced stage; whether the plaintiff was involved in the administrators' appointment; whether the plaintiff would suffer disadvantage if leave is refused; whether the defendant is insured against the alleged liability that is the subject of the proceedings; whether, if leave is granted, the deed administrators will be unreasonably distracted from performance of their statutory duties or obliged unnecessarily to incur substantial legal costs; and whether, in the circumstances, there are good reasons for allowing the plaintiff to continue the proceedings even if the deed administrators do not provide consent. It will be possible to deal with several of these matters briefly, before turning to a more extended analysis of whether the deed administrators will be unreasonably distracted from performance of their duties, or they or Arrium will be obliged unnecessarily to incur substantial legal costs, if leave is granted. Mr Hart rightly recognises that these factors are not exhaustive or a 'shopping list' although they do seem to me to be of assistance in guiding the court in the exercise of its discretion.
Mr Mack also, fairly, draws attention to the decision of Easey v Grosvenor Constructions (NSW) Pty Ltd [2005] NSWSC 878; (2005) 54 ACSR 820, where Barrett J (as his Honour then was) granted leave under s 444E of the Corporations Act for a plaintiff to pursue a personal injury claim against a company that was subject to a deed of company arrangement, although there accepting that an alternative would have been for that plaintiff to bring a claim directly against the insurer under the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). His Honour there referred (at [4]) to several authorities that establish that the approach to applications under s 444E(3) of the Corporations Act:
'is akin to that taken to applications for leave to proceed against a company in the course of being wound up, rather than the more stringent test applied to applications for leave to proceed against a company in Pt 5.3A administration.'
The principles applicable to the exercise of discretion to grant leave to begin or proceed with proceedings under s 444E(3) of the Corporations Act were also recently, and helpfully, summarised by Perry J, by reference to authority, in Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (subject to deed of company arrangement) [2016] FCA 1246 at [83]ff. Her Honour observed that the applicable principles were those applied in determining applications for leave under s 471B of the Corporations Act in relation to liquidation; the onus lies upon the applicant to establish that the ordinary procedure established by a deed of company arrangement should be displaced, namely, that the continued pursuit of the litigation should be substituted for the procedure by which a claimant lodges a verified proof of debt with the deed administrators who admit or reject it, wholly or in part and from whom an appeal lies to the court; the question whether leave should be granted turns upon the exercise of discretion, and each application must turn upon its particular facts and the question cannot be approached as a 'shopping list' of factors; and the exercise of discretion is informed by previous decisions as to relevant factors to be considered and by the purpose of the ordinary rule in s 444E(3) of the Corporations Act prohibiting a creditor from pursuing litigation, including the risk that a company in deed administration would be subject to a multiplicity of actions.
[7] Mehan v Arrium Ltd (formerly Onesteel Ltd) [9] ‑ [14].
Determination
I am satisfied that Mr Corbett has discharged the onus of establishing that the procedure established by the deed of company arrangement should be displaced,[8] and that it is proper to grant leave under s 444E of the Corporations Act. In coming to this conclusion I am influenced by the following.
[8] Mehan v Arrium Ltd (formerly Onesteel Ltd) [14], [46].
Mr Corbett's claim in the District Court action
As explained above, by a writ issued in the District Court on 22 June 2015, Mr Corbett commenced the District Court action seeking damages for personal injuries against Adecco and Onesteel. Mr Corbett claims that on 3 July 2013, he was directed by Onesteel to operate a Robo 60 machine to bend steel bars. It is alleged that he placed a steel bar into the machine when the bar bent backwards, closing in towards him and striking him on the left leg and chest. Mr Corbett claims to have sustained severe injury, has endured pain, suffering and inconvenience, suffered permanent residual disability, loss of enjoyment of life, loss of earnings and earning capacity and will be put to continuing medical, hospital and other expenses.[9] Particulars are provided of Mr Corbett's injuries, treatment, pain and suffering, permanent disabilities and loss of enjoyment of life. By her affidavit sworn on 8 August 2016, Ms Irena Ferraro deposes that Mr Corbett remains incapacitated for work and is permanently impaired.[10]
[9] Affidavit of Irena Ferraro sworn 8 August 2016 [4] ‑ [6]; statement of claim filed on behalf of Mr Corbett in the District Court action on 2 October 2015 [7], [12].
[10] Affidavit of Irena Ferraro sworn 8 August 2016 [17]; supplementary affidavit of Irena Ferraro sworn 2 September 2016 [9]. Also, the statement of claim filed on behalf of Mr Corbett in the District Court action on 2 October 2015 [12] ‑ [16].
On 11 August 2015 an appearance was filed on behalf of Onesteel in the District Court action. A statement of claim was filed on behalf of Mr Corbett on 2 October 2015; a defence was filed on behalf of Adecco on 3 November 2015; and a defence was filed on behalf of Onesteel on 22 December 2015.[11]
[11] Affidavit of Belinda Michalk affirmed on 8 November 2016 [3] ‑ [6]; affidavit of Irena Ferraro sworn 8 August 2016 [9] ‑ [11].
In the District Court action, liability is in issue as against both Adecco and Onesteel. In its defence filed on 22 December 2015, Onesteel pleads that if it is found to have been negligent and/or in breach of its statutory duty (which is denied), the incident occurred as a result of or was contributed to by Mr Corbett's negligence.[12] Adecco's defence contains a similar pleading as against Mr Corbett.
[12] Second defendant's defence dated 22 December 2015 [14].
Particulars of Mr Corbett's alleged damages were not set out in the statement of claim. Regulation 45C of the District Court Rules 2005 (WA) required that Mr Corbett file and serve particulars of damage within 60 days after the day the defence (or if there is more than one defendant, the first defence) is filed. However, particulars of damage were not filed by the plaintiff by 7 April 2016, when voluntary administrators were appointed to Onesteel.
I note that Mr Corbett's claim against Adecco (but not against Onesteel) is subject to constraints in terms of quantum by reason of the provisions of s 93K of the Workers' Compensation and Injury Management Act 1981 (WA) (WCIM Act). Amount A for the purpose of s 93K of the WCIM Act current stands at $465,974. Mr Corbett's WPI (whole person impairment) has been assessed at 21% but in accordance with s 93(k)(13), the District Court may make its own determination and is not bound by the 21% assessment.
I note that there is no reference to medical reports, nor are any medical reports annexed to the affidavits relied upon by Mr Corbett in support of his application for leave, now pressed under s 444E(3) of the Corporations Act. However, having given careful consideration to the pleadings filed in the District Court action, I am satisfied that while particulars of damage have not been provided, Mr Corbett's claim does have a solid foundation and also gives rise to a serious dispute. I have had particular regard to the nature of the defences filed; the fact that the defendants did not seek to strike out Mr Corbett's claim in the District Court action, but rather pleaded defences to the same; and that Mr Corbett received a whole of person impairment assessment of 21%, but elected to retain his right to damages.
Has the District Court action progressed to an advance stage?
The District Court proceedings have not progressed to a particularly advanced stage. On behalf of Mr Corbett, it was submitted that the proceedings had advanced to the stage whereby, but for the automatic stay, discovery was being sought and provided.[13] Mr Corbett's claim had not however been quantified and no particulars of loss and damage had been filed.
[13] Plaintiff's submissions [12] ‑ [13].
I also note that the District Court action was transferred to the inactive list of the District Court in or around March 2016.[14] The circumstances in which the District Court action was so transferred were not explained in the affidavits filed on behalf of Mr Corbett. However, Ms Irena Ferraro did depose to the fact that on 17 August 2016, Mr Corbett's chamber summons application to remove the District Court action from the inactive list came before a registrar of the District Court; the application was granted and the District Court action was removed from the list.[15]
[14] Affidavit of Belinda Michalk affirmed on 8 November 2016 [6].
[15] Supplementary affidavit of Irena Ferraro sworn 2 September 2016 [4] ‑ [5].
In determining the application for leave, I have considered whether the manner in which the District Court action has been prosecuted is a factor which ought to weigh against Mr Corbett's application; and whether the history of the District Court action might be compared to that of the proceedings prosecuted on behalf of Mr Mehan in Mehan v Arrium Ltd (formerly Onesteel Ltd),[16] and be found wanting.
[16] Prior to Arrium's entry into administration, the parties in that case were negotiating to mediate the proceedings in accordance with orders of the Common Law Register: see Mehan v Arrium Ltd (formerly Onesteel Ltd) [5].
Albeit unexplained, I find that the delay between the filing of the defence of Onesteel on 22 December 2015, and the entry into the inactive cases list on March 2016, to not be so significant a delay as to weigh against the grant of leave. Further, while the proceedings are not at a particularly advanced stage, they are not so undeveloped as to weigh against the grant of leave. The action has a solid foundation; the pleadings set out clearly the plaintiff's complaint; and as is clear from the defences filed, the action gives rise to a serious dispute.
Whether Mr Corbett was involved in the appointment of the administrators to Onesteel?
Mr Corbett was not involved in the appointment of administrators to Onesteel.
Would Mr Corbett suffer disadvantage if leave was refused?
In all of the circumstances, I find that Mr Corbett would suffer disadvantage if leave was refused.
The position as between the defendants in the District Court action differs to the position between the defendants in Mehan v Arrium Ltd (formerly Onesteel Ltd), in that in Mehan v Arrium Ltd (formerly Onesteel Ltd), the defendants each pressed for contribution from the other. The defendant says no such claim is made in the District Court action.
I am however satisfied that there would be disadvantage suffered by Mr Corbett if leave is not granted so that he is unable to pursue his claims against both defendants in one proceeding. To pursue two separate proceedings will most likely result in duplication of work and additional costs, with the real potential for inconsistent findings.
Is the defendant insured against the alleged liability that is the subject of the proceedings?
The existence of insurance is a factor that weighs strongly in favour of the exercise of a discretion to grant leave.[17]
[17] Mehan v Arrium Ltd (formerly Onesteel Ltd) [18]; citing with approval Re AJ Benjamin Ltd (in liq) [1969] 2 NSWR 374; Re Sydney Formworks Pty Ltd (in liq) [1965] NSWR 646; Re Coastal Constructions Pty Ltd (in liq) (1994) 13 ACSR 329; Lawless v MacKendrick [No 2] [2008] WASC 15 [37]; Latimer v Cutwood Panels Pty Ltd (in liq) [2012] WASC 408 [12] ‑ [13]; Timbercorp Finance Pty Ltd (in liq) v Vivian [2016] VSC 338; (2016) 114 ACSR 198 [22].
As explained above, by consent, Arrium Creditor Distribution Company Pty Ltd (formerly SSX Pty Ltd) (subject to deed of company arrangement) was substituted for Onesteel as the defendant on 25 October 2017; and at the hearing on 25 October 2017, counsel confirmed that the substitution of Arrium for Onesteel did not in any way impact the rights of the plaintiff under the applicable insurance policy or otherwise.
At the hearing of the application, it was common ground that Onesteel was insured against the alleged liability to Mr Corbett under Arrium Ltd's Combined Liability Insurance Policy, with a deductible amount for any one claim being $250,000.[18] It was also common ground that Arrium Ltd's Combined Liability Insurance Policy was the same policy considered by Black J in Mehan v Arrium Ltd (formerly Onesteel Ltd).
[18] Supplementary affidavit of Irena Ferraro sworn 2 September 2016 [6] ‑ [8], attachments IF-1 ‑ IF-3.
In Mehan v Arrium Ltd (formerly Onesteel Ltd), the defendant argued that there was no evidence in the application that supported the proposition that Mr Mehan's claim was likely to exceed the deductible under the applicable insurance policy and that the policy was likely to be responsive to his claim. In that case, Black J found that evidence as to the extent of Mr Mehan's impairment and the quantum of his claim had already been led in the proceedings, and that claim substantially exceeded the deductible.[19] In the case before me, the claim made by Mr Corbett is one for personal injury, to which the policy appears to respond. However, no particulars as to damages have been filed, the quantum of Mr Corbett's claim has not already been led in the proceedings and there is no evidence to ground a finding that the claim will substantially exceed the deductible. Further, there was no evidence of the amount of legal fees and expenses incurred by Onesteel in defending the District Court action to date (although Ms Michalk does estimate that future costs of defending the District Court action to trial to be around $130,000, including counsel's fees).[20] However, consistent with the position in Mehan v Arrium Ltd (formerly Onesteel Ltd), I find that nothing turns on the same.[21]
[19] Mehan v Arrium Ltd (formerly Onesteel Ltd) [16].
[20] Affidavit of Belinda Michalk affirmed on 8 November 2016 [22].
[21] Mehan v Arrium Ltd (formerly Onesteel Ltd) [21].
While counsel for Onesteel pressed a different construction, the proper construction of the Arrium Ltd's Combined Liability Insurance Policy is discussed by Black J in Mehan v Arrium Ltd (formerly Onesteel Ltd). Adopting his Honour's reasoning, I find that the policy expressly provides that the insurers will defend the relevant claim at their cost and not the insured's cost. As stated by Black J:[22]
It seems to me that ... the policy requires the insurers to defend the proceedings at their own cost in Arrium's name and on its behalf and, if the costs of doing so form part of the Deductible, Arrium is not required to pay them, but to 'bear responsibility' for them under general condition 17, such that the insurers may submit a proof of debt for them in the deed administration. There seems to me to be nothing surprising as to this result since, in the ordinary course, Arrium's insurers would be expected to defend the proceedings, in order to seek to minimise any judgment against Arrium for which they will be obliged to indemnify it and, if they do not do so, then Arrium may choose to defend the proceedings for itself, or (acting reasonably and in good faith and in circumstances that it is in deed administration) not to do so and rely on its right to indemnify under the policy.
[22] Mehan v Arrium Ltd (formerly Onesteel Ltd) [30].
In opposition to the application, Onesteel submitted that whether Mr Corbett wins or loses the District Court action, the insured is liable for the $250,000 deductible, which includes the costs of investigating and defending the District Court action, and any judgment or orders against the insured.[23] Further, the insurer had not advised whether it intended to take over its defence of the District Court action.[24] Rather, the insurer had indicated that it would not assume the defence of those claims which were unlikely to exceed the deductible.[25] The insurer had appointed a firm to liaise with Onesteel's legal representatives to obtain additional information and documentation in relation to the quantum of the claim.[26]
[23] Defendant's outline of submissions dated 29 March 2017 [7].
[24] Defendant's outline of submissions dated 29 March 2017 [6].
[25] Affidavit of Belinda Michalk affirmed on 4 April 2017, attachment BM-2.
[26] Affidavit of Belinda Michalk affirmed on 4 April 2017, attachment BM-3.
On the evidence before me, it is not possible to conclude that there is a significant risk that the insurer will not comply with its obligations under the policy as properly construed. The provision by Mr Corbett of particulars of damage appears likely to be determinative of the question. In the event that the insurer fails to comply with its obligations, then Onesteel (now Arrium) would be obliged to conduct itself as a prudent uninsured, albeit in circumstances which included the fact that it was in deed administration.[27] Further, there is no evidence that Arrium, or at least its deed administrators with the aid of their statutory indemnity, now lack the funds to defend the proceedings if they consider it necessary to do so. There is no evidence before me of the funds now available for unsecured creditors.
If leave is granted will the deed administrators be unreasonably distracted from the performance of their statutory duties or obliged unnecessarily to incur substantial legal costs?
[27] Mehan v Arrium Ltd (formerly Onesteel Ltd) [33].
At the hearing of the application, it was submitted on behalf of the defendant that if the court was to grant Mr Corbett leave to proceed with the application in circumstances where the insurer had not advised the administrators whether it would take over the defence of the District Court proceedings, the administrators would be distracted from their complex task at hand by the need to expend the limited time and resources that they have available to them in defending Mr Corbett's action. If they did not do so, it was submitted on behalf of Onesteel that:[28]
(a)Mr Corbett will almost certainly, at some stage, be entitled to enter judgment in default against (the defendant) on liability (perhaps by reason of (the defendant's failure to comply with a 'springing order' in relation to some interlocutory step); and
(b)Vero might be able to argue its rights have been prejudiced by (the defendant) choosing not to defend the action.
[28] Defendant's outline of submissions dated 29 March 2017 [9].
The evidence before me is that the insurer has not yet confirmed whether it will take over the defence of the District Court action.
At the hearing on 25 October 2017, no party sought to put further evidence before the Court. It is not clear whether, owing to the size and complexity of the administration, it remains the case that the deed administrators do not have the resources available to properly manage and address Mr Corbett's claim should the insurer fail to comply with its obligations under the policy.
Furthermore, in all of the circumstances, I find that there are good reasons to allow Mr Corbett to continue the proceedings even if the deed administrators do not consent. I am particularly concerned that the determination of Mr Corbett's claim under the applicable deed of company arrangement will provide no means by which a consistent determination of Mr Corbett's claims as against Adecco on the one hand and Arrium on the other may be reached.
Orders
I am satisfied that this is a proper case for the grant of leave under s 444E of the Corporations Act. I make the following orders:
1.The plaintiff have leave to continue proceedings in the District Court being CIV 2667 of 2015 (the District Court action).
2.The costs of the application be in the cause in the District Court action.
3.No steps be taken to enforce judgment without leave of the court.
4.There be liberty to apply.
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