Jakovich v 3 Moon Design Pty Ltd - [2022] WASC 278

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   JAKOVICH -v- 3 MOON DESIGN PTY LTD [2022] WASC 278
CORAM:   ACTING MASTER MCDONALD
HEARD:   26 JULY 2022
DELIVERED          :   25 AUGUST 2022
PUBLISHED           :   25 AUGUST 2022
FILE NO/S:   COR 95 of 2022
BETWEEN:   RENATO JAKOVICH
Plaintiff
AND
3 MOON DESIGN PTY LTD
Defendant

Catchwords:

Corporations - Application for leave pursuant to s 500(2) of the Corporations Act 2001 (Cth) - Provision of information and production of documents - Leave granted

Legislation:

Corporations Act 2001 (Cth), s 500(2)

Result:

Application allowed

Category: B

Representation:

Counsel:

Plaintiff	:	In person
Defendant	:	No appearance

Solicitors:

Plaintiff	:	In person
Defendant	:	No appearance

Cases referred to in decision:

Australian Competition and Consumer Commission v Artorios Ink Co Pty Ltd [2013] FCA 753
Boase v Axis International Management Pty Ltd [No 2] [2012] WASC 344
Bol v Coolgardie Minerals Ltd (Receiver and Manager Appointed) (In Liq) [2021] WASC 255.
Latimer v Cutwood Panels Pty Ltd (in liq) [2012] WASC 408
Zoll Medical Australia, in the matter of Cardiac Defibrillators Australia Pty Ltd (in liq) v Cardiac Defibrillators Australia Pty Ltd (in liq)[2022] FCA 167

ACTING MASTER McDONALD:

This is an application made pursuant to s 500(2) of the Corporations Act 2001 (Cth). The plaintiff seeks to be granted leave nunc pro tunc to proceed with an action in the State Administrative Tribunal referred under the Building Services (Complaint Resolution and Administration) Act 2011 (WA) (the SAT proceedings).
For the reasons that follow, I grant leave to proceed with the SAT proceedings subject to conditions.

The application and factual background

The application was made by originating process filed on 3 June 2022. The application is supported by an affidavit sworn on 26 May 2022 by Renato Jakovich (First Jakovich Affidavit),[1] the plaintiff in this application and the applicant in the SAT proceedings.
[1] The affidavit does not comply with Order 37 rule 2 of the Rules of the Supreme Court 1971 (WA) in that the paragraphs are not numbered and the attachments have not been given page numbers so I have adopted the name of the attachment given to it in the Index. The page numbers are the page numbers of the attachment.
At the date of the hearing Mr Jakovich had not filed a company search of ASIC's records of the defendant as is required rule 2.4(2) of the Supreme Court (Corporations) (WA) Rules 2004 (WA). An affidavit annexing the search of ASIC's records was sworn and filed on 8 August 2022 by Mr Jakovich (the Second Jakovich Affidavit).
The following matters are deposed to by Mr Jakovich or understood by reference to the attachments to Mr Jakovich's affidavits.
Mr Jakovich deposes that he entered into building contracts with both the defendant and Nami Construction Pty Ltd.[2] The defendant and Nami Construction Pty Ltd are named the first and second respondents, respectively, in the SAT proceedings. The defendant was in the business of project management. The defendant prepared architectural designs and plans for various building projects and the director of the defendant took on a project management role and engaged contractors to complete the works.[3]
[2] First Jakovich Affidavit, page 2.
[3] First Jakovich Affidavit, Att 20220526 08, page 5.
Mr Jakovich made a complaint to the Building Commissioner pursuant to the Building Services (Complaint Resolution and Administration) Act 2011 in relation to 'excessive building delays, incorrect operations and damage to property.'[4]
[4] First Jakovich Affidavit, page 2.
On 11 October 2021, Mr Mervyn Kitay was appointed as liquidator of the defendant. The defendant went into voluntary liquidation.[5] The Building Commissioner referred the complaint to the State Administrative Tribunal.[6] As the defendant is in liquidation Mr Jakovich cannot proceed against the defendant without leave under s 500(2) of the Corporations Act2001 (Cth).
[5] Second Jakovich Affidavit, Att C page 3.
[6] First Jakovich Affidavit, Att 20220526 08, page 5.
According to Mr Jakovich the second respondent in the SAT proceedings, Nami Construction Pty Ltd, denies any involvement in the dispute.[7] Orders were made in the SAT proceedings requiring Mr Jakovich to provide documents supporting his contention that Nami Construction Pty Ltd had a building contract with Mr Jakovich and carried out the building works at Mr Jakovich's property.[8]
[7] First Jakovich Affidavit, pages 2 - 3.
[8] First Jakovich Affidavit, Att 20220526 05.
The originating process states the grounds for the application in this Court are, in summary:
1.To gain access to evidence in possession of defendant and/or the liquidator appointed to the defendant in relation to Mr Jakovich’s building project.
2.To clarify the nature of the 'illegal operations and 'general building operations' by the defendant and his assigned builder, Nami Construction Pty Ltd, in relation to the building project.
3.To gain access to building documents, engineering approval documents, engineers and contractors details in the possession of the defendant and/or the defendant's liquidator to allow the Mr Jakovich to resolve matters or continue construction of his building project.
These grounds are expanded upon in the First Jakovich Affidavit as follows:
1.To access documents which are held by the liquidator,[9] for the purpose of adducing evidence in the SAT proceedings to clarify whether:
(a)the building works were carried out without a building permit;
(b)the works were done without relevant permits or approvals or if the works were incorrectly designed;
(c)staged payments were in excess of what was agreed or were paid prior to completion;
(d)the defendant was operating while insolvent;
(e)the defendant still holds monies paid by Mr Jakovich.[10]
2.To adduce evidence of the contractual relationship with Nami Construction Pty Ltd,[11] the existence of any building insurance[12] and to contradict the company’s denial of any involvement.[13] Mr Jakovich claims there is evidence that the second respondent has received building payment fees from the defendant or its director and seeks to view the bank statements in the possession of the liquidators. He says he was advised he would need to issue a subpoena and leave to proceed against the defendant would be required.[14]
3.To obtain engineering approvals for the building construction which Mr Jakovich claims are in the possession of the liquidator or the defendant. Mr Jakovich claims it may not be possible to have the works reapproved and reinspected as construction has progressed beyond the foundation and compaction stage, the approval for which having been granted onsite.[15]
[9] First Jakovich Affidavit, page 6.
[10] First Jakovich Affidavit, page 4.
[11] First Jakovich Affidavit page 2.
[12] First Jakovich Affidavit, page 5.
[13] First Jakovich Affidavit, page 3.
[14] First Jakovich Affidavit, page 5.
[15] First Jakovich Affidavit, page 5.
Mr Jakovich informed the court that he had contacted an insurer who advised him that he could not make a claim. Who Mr Jakovich spoke to, who was insured, or the nature of that conversation was not clear.
The financial position of the defendant is outlined in the report to creditors dated 10 January 2022. At that time the liquidator's opinion was that it was unlikely there would be any dividend to any class of creditor and there were insufficient funds to pursue transactions for the purposes of recovery in the absence of creditor funding.
Having said that, Mr Jakovich's application does not seek leave to proceed against the defendant to pursue a monetary remedy.
By letter dated 25 January 2022 to the State Administrative Tribunal, the liquidator advised that, among other things, the liquidation of the defendant company was unfunded and the liquidator did not propose to participate in the SAT proceedings or any future proceedings or oppose or consent to leave being granted pursuant to s 500(2) of the Corporations Act 2001 (WA).[16]
[16] First Jakovich Affidavit, Att 20220526 09.

The applicable principles

Section 500(2) of the Corporations Act 2001 (WA) provides:
(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.
In Boase v Axis International Management Pty Ltd [No 2] [2012] WASC 344:[17]
[17] Boase v Axis International Management Pty Ltd [No 2] [2012] WASC 344, [4] - [15].
4.Section 500(2) of the Corporations Act 2001 (Cth) provides that 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.
5.Like provision in respect of companies being wound up in insolvency or by the court is made in s 471B. The same principles govern the grant of leave under these sections.
6.Part of the purpose of the requirement of leave is to avoid a company in liquidation being subject to a multiplicity of time consuming and expensive actions: Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314, 315 ‑ 317; Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550, 555; Viscariello v Bernsteen Pty Ltd (in liq) [2004] SASC 266 [21].
7.The question whether a claimant should be permitted to proceed by action, or be required to submit a proof of debt and, if unsatisfied appeal to a judge, is essentially one of choosing between alternative forms of procedure: Re Gordon Grant; Vagrand Pty Ltd v Fielding; Viscariello.
8.The discretion to grant or refuse leave is broad. It is not possible or appropriate to attempt to state exhaustively the relevant considerations. Among the relevant considerations are the amount, seriousness and nature of the claim; the degree of complexity and legal factual issues, and the stage the proceedings have reached: Re Gordon Grant (317); Viscariello [21]; Lawless v Mackendrick[No 2] [2008] WASC 15 [35]; Duke v Rain Bow Pty Ltd [2011] VSC 599 [19].
9.It has often been said that there must be no prejudice to the creditors, or to the orderly winding up of the company, before the action is allowed to proceed: Re Gordon Grant and Grant Pty Ltd (in liq) (1982) 6 ACLR 727, 730; Re Sydney Formworks Pty Ltd (in liq) [1965] NSWR 646, 649 - 650; Re AJ Benjamin Ltd (in liq) [1969] 2 NSWR 374, 376; Duke v Rain Bow Pty Ltd [20]. In Lawless v Mackendrick [No 2], Master Newnes described whether there was prejudice to the creditors or to the orderly winding up of the company as a factor to be taken into account.
10.In Haviland v Joslow (No 4) Pty Ltd [1979] 2 NSWLR 318, 319 Needham J stated that the court should not grant leave to proceed or to commence proceedings against a company in liquidation if it appears there is no possibility that the company will be able to meet any part of damages awarded against it. That was said to be based on the principle that the court should not give its imprimatur to fruitless proceedings which would involve a waste of time and money. That statement of principle has been cited in a number of cases since. See, for example, Maher v Taylor [1984] 1 NSWLR 231, 233; ASIC v Managed Investments Ltd (No 2) [2012] QSC 72 (pages 2 ‑ 3). As those cases make clear, it is necessary to give attention to the character of the relief sought by the claimant against the company in liquidation. In Viscariello [21], Besanko J (with whom Doyle CJ and White J agreed) said that the fact that the company would be unable to satisfy the judgment was a factor against the grant of leave, because the court would not give its imprimatur to fruitless proceedings, referring to Haviland v Joslow.
11.In Re AJ Benjamin (376), Street J stated that there would be a good reason to refuse leave when there is no prospect of surplus assets in the company and no question of insurance. That statement was cited with approval in Maher v Taylor (234).
12.The position would be different if there is an insurer standing behind the company in liquidation that will pay the amount of any judgment awarded. In those circumstances, the grant of leave will generally not prejudice creditors: Lawless v Mackendrick [No 2] [37], and cases there cited.
13.The position would also be different in respect of a claimant who had an arguable proprietary claim. That is not the case here.
14.A claimant seeking leave need only to demonstrate a serious question to be tried: Vagrand Pty Ltd v Fielding (556).
15.Where the costs of defending the action to trial would substantially deplete the limited assets available for creditors, that is a major factor against the grant of leave; Meehan v Stockmans Australian Café (Holdings) Pty Ltd (1996) 22 ACSR 123, 128; Katingal Pty Ltd v Amor [1999] FCA 317; (1999) 162 ALR 287 [4].[18]
[18] See also Latimer v Cutwood Panels Pty Ltd (in liq) [2012] WASC 408 and Bol v Coolgardie Minerals Ltd (Receiver and Manager Appointed) (In Liq) [2021] WASC 255.
In Zoll Medical Australia, in the matter of Cardiac Defibrillators Australia Pty Ltd (in liq) v Cardiac Defibrillators Australia Pty Ltd (in liq)[2022] FCA 167, [25] Halley J held:
(g)leave should generally be granted for a proprietary claim which cannot be accommodated within the proof of debt procedure: Chahwan v Euphoric Pty Ltd [2006] NSWSC 1002 at [40] (Barrett J); on appeal Chahwan v Euphoric Pty Ltd and Another (2008) 227 ALR 43; [2008] NSWCA 52 at [8] (Beazley, Tobias and Bell JJ); Oliveri v P M Sulcs & Associates Pty Limited (in liq) [2012] NSWSC 1311 at [10] (Black J); Richardson v Lo Pilato (Liquidator); In the Matter of Trojan Hospitality (ACT) Pty Limited (In Liq) [2014] FCA 888 at [52] ‑ [54] (Foster J); and
(h)the Court will normally grant leave as of right where plaintiffs seek to recover their own property from the company because such claims cannot be accommodated within the proof of debt regime. Claims which can only be resolved by court proceedings include rectification, specific performance, injunction and rescission of a contract: Commonwealth v Davis Samuel Pty Ltd (No 5) (2008) 68 ACSR 336; [2008] ACTSC 124 (Davis Samuel) at [34] ‑ [36] (Refshauge J); cited with approval in Palace v RCR O'Donnell Griffin Pty Ltd (in liq) [2021] QCA 137 at [40] (Sofronoff P and Morrison and Bond JJA); QNI Resources Pty Ltd and Others v Park and Others (2015) 116 ACSR 321; [2016] QSC 222 at [49] (Bond J).

Disposition

On 1 February 2022 directions were made in the SAT proceedings requiring Mr Jakovich to file and give to the second respondent:
(a)written submissions as to why the applicant contends that the second respondent (Nami Constructions Pty Ltd):
(i)has a building contract with the applicant; and
(ii)was the person who carried out the building work at the premises; and
(b)all documents which the applicant proposes to rely in support of his submissions which are not in the documents which have been provided to the Tribunal by the Building Commissioner.
Since the commencement of the SAT proceedings on 13 October 2021, the presiding Senior Member has noted at various directions hearings that leave is required to proceed against the first respondent (the defendant in this Court). On 7 April 2022 orders were made in the SAT proceedings that unless the applicant obtains leave of this Court to continue the proceedings against the first respondent, the Tribunal will dismiss that part of the proceeding for want of prosecution.
Mr Jakovich has not filed any material in his application to this Court indicating what remedy he seeks against the defendant in the SAT proceedings. Clearly there is no capacity for the defendant to rectify any defects.
The liquidator's estimate of funds available to meet the debts of the creditors depends on the liquidator's findings in relation to whether there is a director debit loan account. In the liquidator's report to creditors dated 10 January 2022, the liquidator formed a preliminary view that he does not believe there will be a dividend to any class of creditor, subject to a response from the director in relation to his ability to repay the loan account.[19]
[19] First Jakovich Affidavit, Att 20220526 08, page 21.
There is no evidence before me that there is in fact a loan account and therefore no evidence as to whether any amount owed has been repaid. The liquidator makes no mention of an insurer.
I am not satisfied the defendant has any capacity to meet a judgment or that a proof of debt process is an inadequate alternative to seeking a monetary remedy in the SAT proceedings, if that is what is sought.
However, the proof of debt process is an inadequate alternative to seek the provision of information or access to documents. The reasons for which leave is sought is to enable Mr Jakovich to obtain access to documents to allow him to establish in the SAT proceedings that the defendant engaged Nami Constructions Pty Ltd or that Nami Constructions Pty Ltd was responsible for some of the building works carried out on Mr Jakovich's property.
The liquidator is obliged to retain books and records of the company. I note that the liquidator in his report makes a negative assessment about the adequacy of books and records kept by the defendant (including basic source documents, such as bank statements, invoices etc).[20]
[20] First Jakovich Affidavit, Att 20220526 08, page 15.
According to Mr Jakovich, the liquidator has provided inspection of a sample of bank statements but has refused access to the provision of documents or information without a subpoena.[21]
[21] First Jakovich Affidavit, page 5 [2.9].
Mr Jakovich also seeks to obtain approvals and designs carried out by the defendant for which he says he has paid.
While I have heard only from Mr Jakovich, I am satisfied there is a serious question to be tried. It is contended that the building works should have been completed by September 2020, payments have been made for stages not completed and there is uncertainty about the need and the ability to seek reapproval for incomplete works.
Mr Jakovich is required to produce documents that he has a contract with the second respondent and that the second respondent carried out building work. That evidence, according to Mr Jakovich, is likely to be in the possession of the defendant. It appears that, without any evidence connecting the defendant with Nami Constructions Pty Ltd in the SAT proceedings, Mr Jakovich may be left without a remedy.
I am satisfied that leave to proceed against the defendant for the purposes of obtaining access to documents would not affect the administration of the winding up of the company or prejudice the other creditors.
Granting leave would enable Mr Jakovich to apply to the Tribunal for orders concerning the conduct of the proceedings including the production of documents as it sees fit under s 32 or s 34 of the State Administrative Tribunal Act 2004 (WA).
Leave may not be strictly necessary to obtain production of documents under a subpoena.[22] However, rather than invite further argument as to whether that is the case and the difficulties to which Mr Jakovich deposes in obtaining documents from the liquidator, I am satisfied Mr Jakovich requires this Court's assistance to facilitate the bringing of an action against the defendant to enable him to seek orders to compel the production of documents in the SAT proceedings.[23]
[22] Australian Competition and Consumer Commission v Artorios Ink Co Pty Ltd [2013] FCA 753, [24]; Boase v Axis International Management Pty Ltd [No 2] [2012] WASC 344 [49].
[23] See Zoll Medical Australia, in the matter of Cardiac Defibrillators Australia Pty Ltd (in liq) v Cardiac Defibrillators Australia Pty Ltd (in liq)[2022] FCA 167 [5].

Conclusion and order

I will make an order granting leave pursuant to s 500(2) of the Corporations Act 2001 (Cth) but due to the lack of information about the nature of the remedy sought in the SAT proceedings I will make the order conditional in the following terms:
Pursuant to s 500(2) of the Corporations Act 2001 (Cth) the plaintiff has leave to proceed nunc pro tunc against the defendant, 3 Moon Design Pty Ltd (in liq) in the proceedings in the State Administrative Tribunal CC 1665 of 2021 on condition that:
(a) any costs order not be sought or made against the defendant; and
(b) any other monetary order is not enforced against the defendant,
without further leave of the Court.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TG
Associate to Acting Master McDonald
25 AUGUST 2022