Crest Resource Services Pte Ltd v Lieshout

[2014] WASC 122

CREST RESOURCE SERVICES PTE LTD -v- LIESHOUT [2014] WASC 122

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2014] WASC 122
Case No:	CIV:2848/2013	Heard:	18 MARCH 2014
Coram:	MASTER SANDERSON	Delivered:	10/04/14
No of pages:	6	Judgment Part:	1 of 1
Result:	Application dismissed
Category:	B
PDF Version

Parties:	CREST RESOURCE SERVICES PTE LTD (Registered No 201309801H) MARK WILLIAM LIESHOUT
Catchwords:	Corporations law Application for summary judgment Defendant guarantor of debt owed to company Whether leave required to continue with action after company placed in administration Turns on own facts
Legislation:	Nil
Case References:	Bank of Western Australia Ltd v Clift [2010] QSC 366

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : CREST RESOURCE SERVICES PTE LTD -v- LIESHOUT [2014] WASC 122 CORAM : MASTER SANDERSON HEARD : 18 MARCH 2014 DELIVERED : 10 APRIL 2014 FILE NO/S : CIV 2848 of 2013 BETWEEN : CREST RESOURCE SERVICES PTE LTD (Registered No 201309801H)

Plaintiff

AND

MARK WILLIAM LIESHOUT
Defendant

Catchwords:

Corporations law - Application for summary judgment - Defendant guarantor of debt owed to company - Whether leave required to continue with action after company placed in administration - Turns on own facts

Legislation:

Nil

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff : Mr M P Bruce
Defendant : Mr M C Goldblatt

Solicitors:

Plaintiff : Bennett + Co
Defendant : Murcia Pestell Hillard

Case(s) referred to in judgment(s):

Bank of Western Australia Ltd v Clift [2010] QSC 366



1 MASTER SANDERSON: This application raises a short but important point relating to the effect of the appointment of an administrator to a corporation where a third party has guaranteed the debts of the corporation. It arises in the context of an application for summary judgment. That is unfortunate because if I determine the defendant has an arguable case then it is proper to give leave to defend. It is only if I am satisfied the defendant's position is unarguable that I can finally dispose of this application. The position may have been different had the defendant also applied for summary judgment. But that has not been done and all I can do is deal with the application presently before the court.

2 There is no dispute about the facts. The defendant was the guarantor of a debt owed by The Anywhere Group of Companies Pty Ltd (the principal debtor) to the plaintiff. The defendant was a director of the principal debtor. As at 3 December 2013 the principal debtor owed the plaintiff $9,221,808.22. The plaintiff made demand of the defendant under the terms of the guarantee. The plaintiff issued proceedings on 9 December 2013. On 13 January 2014 the plaintiff applied for summary judgment. The application was supported by an affidavit of Choi Chee Sun affirmed 8 January 2014. That affidavit verified the statement of claim so the requirements of O 14 r 2(1) of the Rules of the Supreme Court 1971 (WA) were satisfied. The defendant did not file any affidavit in response. On 18 February 2014 the principal debtor was placed in administration. It is the defendant's position pursuant to s 440J of the Corporations Act 2001 (Cth) the plaintiff is precluded from enforcing the guarantee while the principal debtor remains in administration. At the hearing of this application this was the sole issue between the parties.

3 Section 440J of the Corporations Act is titled 'ADMINISTRATION NOT TO TRIGGER LIABILITY OF DIRECTOR OR RELATIVE UNDER GUARANTEE OF A COMPANY'S LIABILITY'. It reads as follows:

(1) 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 or relative of such a director; and


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

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


(2) While subsection (1) prevents a person (the creditor) from:

(a) enforcing as against another person (the guarantor) a guarantee of a liability of a company; or

(b) beginning a proceeding against another person (the guarantor) in relation to such a guarantee;

Section 1323 applies in relation to the creditor and the guarantor as if:

(c) a civil proceeding against the guarantor had begun under this Act; and

(d) the creditor were the only person of a kind referred to in that section as an aggrieved person.


Note: Under section 1323 the Court can make a range of orders to ensure that a person can meet the person's liabilities.

(3) The effect that section 1323 has because of a particular application of subsection (2) is additional to, and does not prejudice, the effect the section otherwise has.

(4) In this section:


'guarantee', in relation to a liability of a company, includes a relevant agreement (as defined in section 9) because of which a person other than the company has incurred, or may incur, whether jointly with the company or otherwise, a liability in respect of the liability of the company.

'liability' means a debt, liability or other obligation.

4 The question then is whether or not leave to pursue an action is required where proceedings against the director were commenced prior to the company being placed in administration and during the course of proceedings the company is placed in administration. It was common ground between the parties if a company was placed in administration then an action could not be commenced to enforce a director's guarantee. That is the clear effect of s 440J(1)(b). It was the plaintiff's submission where proceedings had been commenced before the company was placed in administration leave was not required to continue with those proceedings. The defendant's response was to say that approach deprived s 440J(1) of all content - it simply had no force and effect. There is only one case dealing directly with this question and it supports the plaintiff's argument.

5 The authority upon which the plaintiff relied was a decision of Wilson J in Bank of Western Australia Ltd v Clift [2010] QSC 366. The question in the case, as here, was whether or not in circumstances where proceedings had been issued against a director guarantor before the company went into administration leave was required to proceed with the application. The learned judge focused on the introductory words to s 440J(1) 'guarantees unenforceable'. His Honour said:

In its ordinary meaning 'enforce' means to compel the observance of (see R v Bates [1982] 2 NSWLR 894 at 895). In Re Behan (1995) 17 ACSR 725 Hill J considered s 440J. In that case default judgment had been obtained against a guarantor before an administrator was appointed to the debtor company. A bankruptcy notice was then issued against the guarantor. His Honour dealt with an application to set aside the bankruptcy notice, on the ground that leave should have been obtained under s 440J. He held that liability on the guarantee merged in the judgment with the result that the creditor was no longer seeking to enforce the guarantee. In other words, s 440J was not engaged. His Honour observed that 'enforcement' would extend to steps anterior to the commencement of a proceeding, for example, serving a demand on a guarantor. He left open the question which arises in this case - whether taking a further step in a proceeding already on foot requires leave [12].

6 His Honour then went on to consider the policy issues behind the introduction of s 440J of the Corporations Act. He referred to the explanatory memorandum which accompanied the introduction of the legislation which suggested if directors realised placing a company in administration would trigger guarantees they had provided then the use of the administration procedure would be less likely. His Honour also referred to the work by O'Donovan & Phillips, Modern Contract of Guarantee where the learned authors suggest the rationale may be the need for directors to work with the administrators - something that was less likely if the appointment of the administrators triggered liability under the guarantee. But His Honour did not appear to find any assistance in the reasons behind the introduction of the section when it came to actually determining how it would operate. His Honour then reached a conclusion:

I have already referred to the probable legislative purpose in the enactment of s 440J as being to encourage directors to cooperate with the administrator. It seems to me there is a relevant distinction between the appointment of an administrator triggering a liability under a guarantee on the one hand and the continued maintenance of proceedings already on foot on the other. In the latter case, the potential for discouragement seems less.

This is not an easy question but, on balance, I have concluded that leave is not required. Accordingly, there should be the judgment sought [18] - [19].

7 Counsel for the defendant submitted his Honour's decision should be treated with caution. Counsel pointed out at the hearing the defendant did not appear. His Honour then did not have the advantage of full argument. Further, the decision was extempore in circumstances where his Honour acknowledged the point at issue 'was not an easy question'.

8 Counsel for the defendant repeatedly came back to his main point. Section 440J(1)(a) does not speak of triggering the liability under a guarantee. It speaks of the liability being 'enforced'. That, counsel submitted, is what was being done here - by seeking summary judgment the plaintiff was looking to 'enforce the guarantee'. If proceedings which had already been commenced when the company was placed in administration could continue because they had not provided the 'trigger' then the section was meaningless.

9 In the end I am satisfied there is real force in the defendant's argument. As I mentioned at the commencement of these reasons, because it is a summary judgment application I need only determine whether the defendant has an arguable case. I am satisfied that he does. Accordingly the application for summary judgment will be dismissed. The costs of the application including reserve costs ought be costs in the cause.