Goldblaze Nominees Pty Ltd as trustee for the Goldblaze Unit Trust v HHA Architects Pty Ltd - [2021] WASC 189

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   GOLDBLAZE NOMINEES PTY LTD AS TRUSTEE FOR THE GOLDBLAZE UNIT TRUST -v- HHA ARCHITECTS PTY LTD [2021] WASC 189
CORAM:   MASTER SANDERSON
HEARD:   6 MAY 2021
DELIVERED          :   11 JUNE 2021
PUBLISHED           :   11 JUNE 2021
FILE NO/S:   COR 31 of 2021
BETWEEN:   GOLDBLAZE NOMINEES PTY LTD AS TRUSTEE FOR THE GOLDBLAZE UNIT TRUST
First Plaintiff

NORMAN PHILLIP CAREY
Second Plaintiff

AND

HHA ARCHITECTS PTY LTD
Defendant

Catchwords:

Corporations law - Winding up on just and equitable ground when professional indemnity failing

Legislation:

Corporations Act 2001 (Cth)

Result:

Company wound up

Category: A

Representation:

Counsel:

First Plaintiff	:	M de Kerloy
Second Plaintiff	:	M de Kerloy
Defendant	:	In person

Solicitors:

First Plaintiff	:	Mony De Kerloy
Second Plaintiff	:	Mony De Kerloy
Defendant	:	In person

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

Australian Securities and Investment Commission v Active Super Pty Ltd [No 2] [2013] FCA 234
Deputy Commissioner of Taxation v A & S Services Australia Pty Ltd [2017] FCA 437
Yeo v Alpha Racking Pty Ltd in the matter of Alpha Racking Pty Ltd [2019] FCA 1338

MASTER SANDERSON:

By originating process filed 24 February 2021, the plaintiffs applied to wind up the defendant under s 461(1)(k) of the Corporations Act 2001 (Cth). This is the so‑called 'just and equitable' ground. To bring proceedings under s 461, an applicant must have satisfied one of the requirements in s 462(2). In this case the plaintiffs say it is at very least a contingent creditor of the defendant. The plaintiffs have brought proceedings against the defendant for professional negligence: Goldblaze Nominees Pty Ltd as trustee for the Goldblaze Unit Trust v HHA Architects Pty Ltd (CIV 1102 of 2019). Those proceedings had not yet been determined and so it is not possible to say the plaintiffs are a creditor of the defendant. But based upon the pleaded claim it is possible to say the plaintiffs are a prospective creditor of the defendant. On that basis it has standing to bring this application.
It is the plaintiffs' position that since the commencement of the professional negligence proceedings, the defendant and its directors have engaged in a scheme to divert the business and business assets of the defendant to a related company. This has resulted, so the defendant says, in the defendant having no asset other than a professional indemnity insurance policy with which to meet the judgment debt in the professional negligence proceedings.
To make good this claim the plaintiffs refer to a number of matters. First, they say prior to 30 June 2018 the defendant operated an architectural business under the name 'HHA Architects'. This business was registered with the Architects Board of Western Australia. The defendant's key personnel were its directors, Mr Alistair Hume and Mrs Kathleen Hume. Both Mr and Mrs Hume were registered as architects with the Architects Board of Western Australia. The defendant's business included the provision of specialist healthcare architectural services.
From 1 July 2018 the defendant ceased operating its business. In an affidavit of 14 April 2021, Mr Hume, on behalf of both directors, admitted the defendant's business was 'mothballed until he [Mr Hume] can nullify a legal claim against the company …'. The defendant has ceased to be registered with the Architects Board of Western Australia and has ceased to hold professional indemnity insurance. Mr and Mrs Hume have ceased employment with the defendant and Mrs Hume has resigned as a director and transferred her shares in the defendant. The defendant's website has been closed down and it would seem this was done pending the outcome of the professional negligence proceedings. All in all, it is fair to say, at least on the plaintiffs' case, the defendant has shut up shop.
The plaintiffs also point to the fact a new entity, Hume Healthcare Architects Pty Ltd was established on 24 July 2018. It operates an architectural business under its own name. The acronym of its name is the name of the defendant. The new business was registered with the Architects Board of Western Australia. Mrs Hume is a director and employee of the new firm and is practising as an architect. Mr Hume is an employee of the firm and is practising as an architect. The new business has the same contact details as the defendant ‑ it has the same landline and mobile telephone numbers and the same email address.
The plaintiffs say the defendant is a mere shell and its business has been removed. Based upon the available evidence that is probably correct.
If that was the end of the matter I would not have made the order sought by the plaintiffs. In support of its application, the plaintiffs relied on a number of decisions. In Australian Securities and Investment Commission v Active Super Pty Ltd [No 2] [2013] FCA 234, the court cited a lack of confidence in the conduct and management of the company's affairs as the basis for appointing a liquidator. The court found as a fact it could not have confidence in the controllers of the company to comply with their obligations, including the keeping of books, records and documents and looking after the affairs of the company. In Yeo v Alpha Racking Pty Ltd in the matter of Alpha Racking Pty Ltd [2019] FCA 1338, the court appointed a provisional liquidator to the company where it found there was prima facie evidence the directors had engaged in a plan or scheme to strip or transfer the business and assets from a company in liquidation to the defendant company. A similar decision was reached in Deputy Commissioner of Taxation v A & S Services Australia Pty Ltd [2017] FCA 437.
While each of these decisions may, to an extent, support the plaintiffs' case they all arise in different circumstances. Here it is clear the defendant's business really depends upon Mr and Mrs Hume. They cannot be prevented from walking away from the defendant. If, in due course, the plaintiffs were successful in their action and established it was entitled to damages for professional negligence, either those damages would be paid (which seems unlikely) or the plaintiffs would move to wind up the defendant. Given the defendant's valuation as a going concern would seem to be dependent upon the presence of Mr and Mrs Hume and their conduct of the architectural business, it is hard to see how the company would have any assets of significance to satisfy the plaintiffs' claim. In other words, no matter what steps Mr and Mrs Hume have taken, or are taking, it does not seem the defendant would be in any different position now to the position it would be in after the professional negligence proceedings have been concluded.
The plaintiffs' real concern in this case is that the defendant has a professional negligence insurance policy. That policy was taken out by the defendant as part of its requirements to be registered by the Architects Board. When the professional negligence claim was brought by the plaintiffs, the defendant notified its insurers, the insurers appointed solicitors and those solicitors conducted the defendant's defence. Mr Hume was not satisfied with the way in which the defence was conducted. He was of the view the plaintiffs' claim had no merit and should not, under any circumstances, be settled. There was a mediation conference where the matter was not settled. But subsequent to that mediation conference, the solicitors then acting for the defendant applied to be removed from the record. That order has been made. The defendant is now unrepresented. Mr Hume wants to represent the defendant himself but he cannot do so. Quite how the professional negligence claim proceeds from this point is not clear.
The point of this action, so far as the plaintiffs are concerned, is to have a liquidator appointed so as to safeguard the professional indemnity policy. As a general rule a liquidator who takes over a company which has insurance of one kind or another will take a neutral position if a party seeks to proceed against the company in liquidation and where the liability of the company is protected by the insurance policy. This situation most commonly arises in personal injuries claims. An injured worker seeks leave of the court under s 471B or s 500(2) of the Corporations Act to either commence or continue civil proceedings. Generally speaking an insurer raises no objection ‑ they will be neither better nor worse off than they would have been if the company was not in liquidation. The insurer simply conducts a defence of the proceedings through the solicitors they appoint.
It is generally the case that holding professional indemnity insurance is a prerequisite to an individual practising in a profession. Healthcare professionals, lawyers, land valuers and, of course, architects are required to carry professional indemnity insurance if they are to practice in their profession. The reasons why that is so are obvious. It is for the protection of the public. It may have the added benefit of ensuring that if a professional is found liable they are not financially ruined by a judgment. But that is very much a secondary consideration. The primary reason why insurance is required is consumer protection. There is a wider public interest at stake and the legislature has moved to ensure that interest is protected.
That adds a different dimension to this application. There is no evidence available at present as to the state of the relationship between Mr Hume and the insurers of the defendant. It may be that Mr Hume, in acting as he has, has already breached the terms of the insurance policy so that it may no longer respond. I emphasise there is no evidence to that effect. But it is a risk. Even if the policy has not yet been compromised, Mr Hume's actions in the future may jeopardise the policy. In other words, Mr Hume's approach may defeat the aim of the legislature to protect the consumer. To allow that to happen would run counter to public policy.
In all the circumstances I am satisfied this is a proper case to appoint a liquidator. As I see it, the step is essential to protect the interests of the consumer. Accordingly, I will make the orders proposed in the originating process.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AH
Secretary
11 JUNE 2021