Latimer v Cutwood Panels Pty Ltd (in liq)

[2012] WASC 408

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   LATIMER -v- CUTWOOD PANELS PTY LTD (in liq) [2012] WASC 408

CORAM:   BEECH J

HEARD:   ON THE PAPERS

DELIVERED          :   1 NOVEMBER 2012

FILE NO/S:   CIV 2318 of 2012

MATTER                :In the matter of section 500(2) of the Corporations Act 2001 (Cth)

BETWEEN:   KEITH LATIMER

Plaintiff

AND

CUTWOOD PANELS PTY LTD (in liq)
Defendant

Catchwords:

Corporations - Application for leave to proceed against company being wound up - Company's defence being conducted by insurer - Whether leave should be granted - Turns on own facts

Legislation:

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

Result:

Application granted

Category:    B

Representation:

Counsel:

Plaintiff:     No appearance

Defendant:     No appearance

Solicitors:

Plaintiff:     Trewin Norman & Co

Defendant:     No appearance

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

ASIC v Managed Investments Ltd (No 2) [2012] QSC 72

Boase v Axis International Management Pty Ltd [No 2] [2012] WASC 334

Duke v Rain Bow Pty Ltd [2011] VSC 599

Haviland v Joslow (No 4) Pty Ltd [1979] 2 NSWLR 318

Lawless v Mackendrick [No 2] [2008] WASC 15

Maher v Taylor [1984] 1 NSWLR 231

Re AJ Benjamin Ltd (in liq) [1969] 2 NSWR 374

Re Coastal Constructions Pty Ltd (1994) 13 ACSR 329

Re Gordon Grant and Grant Pty Ltd (in liq) (1982) 6 ACLR 727

Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314

Re Sydney Formworks Pty Ltd (in liq) [1965] NSWR 646

Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550

Viscariello v Bernsteen Pty Ltd (in liq) [2004] SASC 266

BEECH J: 

Introduction

1. In October 2010, the plaintiff commenced an action in the District Court, seeking damages for injuries he suffered as a result of the negligence of the defendant (Cutwood). In May 2011, Cutwood was placed into liquidation, it seems by a resolution of creditors under s 445F of the Corporations Act 2001 (Cth). This was brought to the attention of the plaintiff on 1 June 2012. Between May 2011 and June 2012, some steps had taken place in the District Court proceedings. By these proceedings, the plaintiff seeks leave under s 500(2) of the Corporations Act to proceed against the defendant company in liquidation. 

2. After being served with the originating summons, the liquidator of Cutwood wrote to the plaintiff's solicitors to advise that he did not intend to enter an appearance in these proceedings, stating that Cutwood does not have sufficient assets to pay a dividend to ordinary unsecured creditors and accordingly the liquidator did not consent to nor oppose these proceedings.

3. For the reasons that follow, I would grant the leave sought by the plaintiff.

Application for leave to proceed:  principles

1. Where, as here, creditors pass a resolution under s 445F to wind up the company, pt 5.5 of the Corporations Act, including s 500, is engaged.

2. I recently outlined the principles relevant to an application under s 500(2) for leave to proceed against a company in liquidation in Boase v Axis International Management Pty Ltd [No 2] [2012] WASC 334 [4] ‑ [15]. What follows draws on that outline.

3. Section 500(2) of the Corporations Act 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.

4. 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.

5. 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].

6. 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].

7. 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; ReAJ Benjamin Ltd (in liq) [1969] 2 NSWR 374, 376; Duke v Rain Bow Pty Ltd [20].

8. 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).

9. 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).

10. The position is different if there is an insurer standing behind the company in liquidation that will pay the amount of any judgment awarded.  That has been said to be a factor strongly favouring the grant of leave, as in those circumstances, the grant of leave will generally not prejudice creditors:  Lawless v Mackendrick [No 2] [37]; Re AJ Benjamin; Re Sydney Formworks; Re Coastal Constructions Pty Ltd (1994) 13 ACSR 329.

11. A claimant seeking leave need only to demonstrate a serious question to be tried:  Vagrand Pty Ltd v Fielding (556).

The plaintiff's District Court action

1. In the writ of summons filed in the District Court, the plaintiff claims that in October 2009, when working as a cleaner at a primary school, he suffered injury when a temporary ramp he was walking on collapsed.  The ramp had been constructed to provide access from the car park to a music centre at the school whilst Cutwood carried out building and construction works.

2. The plaintiff initially brought its action against Cutwood on the basis that Cutwood had constructed and installed the ramp.  In July 2011 (after Cutwood had been placed into liquidation), the plaintiff amended his claim to join another defendant and alleged that the ramp was constructed and installed either by Cutwood or the second defendant, or by both of them. 

3. In December 2010, Cutwood filed its defence.  It has also joined the company that it subcontracted to construct the access ramp as a third party to the action. 

Disposition

1. There is evidence in the plaintiff's affidavit that Cutwood's insurers instructed solicitors to defend the action and are continuing to give instructions in the litigation.  I infer that the insurer will or may indemnify Cutwood in respect of any liability it may be found to have in the District Court action, and meet any judgment.

2. I am satisfied that leave to proceed against Cutwood should be granted.  The plaintiff's case demonstrates a serious question to be tried.  Consistent with the principles outlined above, the involvement of Cutwood's insurer in the litigation is a strong factor in favour of granting leave.  The presence of the insurer significantly reduces, if not eliminates, the risk that the proceedings as against Cutwood would be fruitless if leave were granted, and means that there is no prejudice to creditors by allowing the litigation to continue.

Orders

1. I make orders in terms of the plaintiff's minute of proposed orders as follows:

   (1)The plaintiff be granted leave nunc pro tunc pursuant to s 500(2) of the Corporations Act 2001 to begin and proceed with action CIV 3177 of 2010 in the District Court of Western Australia against the defendant Cutwood Panels Pty Ltd.

   (2)The plaintiff not execute on any judgment without leave of the Supreme Court of Western Australia.

   (3)The application otherwise be adjourned sine die.

   (4)The costs of the application be costs in the District Court proceedings.