Permanent Custodian Limited v KCRAM Pty Limited (in Liquidation)

[2011] FCA 1083

FEDERAL COURT OF AUSTRALIA

Permanent Custodian Limited v KCRAM Pty Limited (in Liquidation) [2011] FCA 1083

Citation:		Permanent Custodian Limited v KCRAM Pty Limited (in Liquidation) [2011] FCA 1083
Parties:		PERMANENT CUSTODIAN LIMITED (ACN 001 426 384) and COLUMBUS CAPITAL PTY LIMITED (ACN 119 531 252) v KCRAM PTY LIMITED (FORMERLY KNOWN AS PRP VALUERS AND CONSULTANTS GOLD COAST PTY LIMITED) (ACN 091 511 125) and RAY ALLSOP
File number:		NSD 1034 of 2011
Judge:		COWDROY J
Date of judgment:		22 September 2011
Catchwords:		PRACTICE AND PROCEDURE – Leave sought to continue proceedings against first respondent in liquidation – first respondent insured against liability for which applicants are suing
Legislation:		Corporations Act 2001 (Cth) ss 500(2), 562 Fair Trading Act 1987 (NSW) s 42 Insurance Contracts Act 1984 (Cth) s 40(3) Trade Practices Act 1974 (Cth) ss 51A, 52, 53A
Cases cited:		Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (No 2) [2009] FCA 42 Meehan and Another v Stockmans Australian Cafe (Holdings) Pty Limited and Another (1996) 22 ACSR 123 Re Sydney Formworks Pty Ltd (In Liquidation) (1965) 82 W.N. 558 Vagrand Pty Limited (In Liquidation) v Fielding and Others (1993) 41 FCR 550
Date of hearing:	19 September 2011
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	22
Solicitor for the Applicants:	Ms Vetrova, Gadens Lawyers
Solicitor for the Second Respondent:	Mr Patel, DLA Piper Australia

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1034 of 2011

BETWEEN:

PERMANENT CUSTODIAN LIMITED (ACN 001 426 384)
First Applicant

COLUMBUS CAPITAL PTY LIMITED (ACN 119 531 252)
Second Applicant

AND:

KCRAM PTY LIMITED (FORMERLY KNOWN AS PRP VALUERS AND CONSULTANTS GOLD COAST PTY LIMITED) (ACN 091 511 125)
First Respondent

RAY ALLSOP
Second Respondent

JUDGE:	COWDROY J
DATE OF ORDER:	22 SEPTEMBER 2011
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.Leave to proceed against the First Respondent be granted pursuant to s 500(2) of the Corporations Act 2001 (Cth).

2.Any judgment obtained by the Applicants against the First Respondent not be enforced against the assets of the First Respondent without the leave of the Court.

3.The Registrar correct the Court file to change the name of the First Respondent to ‘KCRAM Pty Ltd (in Liquidation)’.

4.The cost of this motion be costs in the proceedings.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1034 of 2011

BETWEEN:

PERMANENT CUSTODIAN LIMITED (ACN 001 426 384)
First Applicant

COLUMBUS CAPITAL PTY LIMITED (ACN 119 531 252)
Second Applicant

AND:

KCRAM PTY LIMITED (FORMERLY KNOWN AS PRP VALUERS AND CONSULTANTS GOLD COAST PTY LIMITED) (ACN 091 511 125)
First Respondent

RAY ALLSOP
Second Respondent

JUDGE:	COWDROY J
DATE:	22 SEPTEMBER 2011
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. By notice of motion filed 9 September 2011, the applicants seek the leave of the Court to proceed against the first respondent pursuant to s 500(2) of the Corporations Act 2001 (Cth) (‘the CA’).

2. The applicants filed a Fast Track Application and Fast Track Statement on 27 June 2011, claiming damages arising out of valuations of land made on 24 July 2007 and on 24 October 2007. Both valuations were provided by the first respondent by its servant or agent, the second respondent and related to land and a townhouse erected thereon known as Kirribilli Heights, Lot 22 Ridgeline Way, Highland Park QLD 4211.

3. The applicants raise three causes of action in their Fast Track Application and Fast Track Statement. The first alleges a breach of ss 51A, 52 and 53A of the extant Trade Practices Act 1974 (Cth) (‘the TPA’). The second cause of action relies upon breaches of s 42 of the Fair Trading Act 1987 (NSW) (‘the FTA’). The third cause of action arises in negligence.

4. The applicants served a letter of demand on both respondents on 22 March 2011. The first respondent held a Miscellaneous Professional Indemnity Insurance Policy (‘the policy’) with Assetinsure Pty Ltd (‘the insurer’). The policy indemnified the first respondent in respect of the following, as stated in the policy:

   1.civil liability for any Loss incurred by the Insured arising from any Claim first made against the Insured and which is notified to the Insurer during the Policy Period for any actual or alleged Wrongful Professional Act of the Insured; and

   2.Defence Costs incurred either by the Insurer or the Insured with the prior written consent of the Insurer.

5. The term ‘Wrongful Professional Act’ is defined in the Definitions section of the policy as including, inter alia, negligence or breach of an express or implied contractual duty to use reasonable care and skill in a professional capacity in the conduct of the Insured Profession. The term ‘Insured Profession’ is also defined in the policy as including ‘the profession as specified in Item 4 of the Schedule conducted by the Insured’. The Schedule to the policy defines ‘Insured Profession’ as ‘Property Valuers’.

6. The Limit of Indemnity is defined in the Schedule as $5,000,000. Significantly, the policy extends the cover to misleading, deceptive or unconscionable conduct. Clause 2 of the policy entitled ‘Automatic Extensions’ provides:

   Definition 19 (Wrongful Professional Act) of this Policy is extended to include any act, error or omission in a professional capacity in the conduct of the Insured Profession that is:

   i.misleading or deceptive or likely to mislead or deceive; or

   ii.unconscionable.

7. The policy period is described in the Schedule as being from 14 January 2010 at 4.00 pm LST to 14 April 2011 at 4.00 pm LST.

   NOTIFICATION OF CLAIM

8. A claim form was lodged with the insurer by the first respondent on or about 23 March 2011 and was lodged in respect of the written notification of the letter of demand made by Gadens Lawyers on behalf of the applicants on 22 March 2011. The particulars contained in the claim form identify precisely the applicants’ claim which is now the subject of these proceedings. The form nominates the second respondent as the officer who performed the work or services against whom the claim or potential claim ‘is principally directed’. A copy of the claim was attached to the claim form indicating the amount of the claim as $551,272.11. The Court observes that whilst the insured in the policy is defined as PRP Valuers and Consultants Gold Coast Pty Limited, only a change of name of company has occurred since the ACN of both the insured and the first respondent are identical.

9. On 23 March 2011 the insurer acknowledged receipt of the claim, stating:

   We acknowledge this communication as notification of facts that might give rise to claim under the above policy (‘the Policy’) pursuant to S. 40 (3) of the Insurance Contracts Act based on current known facts and circumstances.

   It remains to be seen whether a claim which is indemnifiable under our Policy will eventually be made.

10. It follows from the above that the insurer was placed upon notice of the claim by the applicants during the period of the insurance although the actual proceedings were not commenced until after the period had expired. ‘Claim’ under the policy is defined as ‘any civil proceedings brought against an Insured for compensation’. Pursuant to s 40(3) of the Insurance Contracts Act 1984 (Cth), the claim that is the subject of these proceedings would remain subject to the insurance policy.

11. After filing the Fast Track Application and Fast Track Statement the applicants became aware that the first respondent had been placed in liquidation. The extract from the Australian and Securities Investment Commission database (accessed on 27 June 2011 at 4.17 pm) establishes that the Notification of Appointment of Liquidator (Creditors’ Voluntary Winding Up) was processed on 27 June 2011 and was effective form 21 June 2011. A Notification of Resolution Winding Up the Company was processed on 27 June 2011 and was effective from 21 June 2011.

    BASIS OF APPLICATION

12. The applicants submit that the leave of the Court should be granted in respect of the application now before it. Section 500(2) of the CA provides:

    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.

13. In determining whether leave should be granted, it is not necessary for an applicant to demonstrate that they have a prima facie case. Rather, there needs to be evidence to support the assertion that there exists a ‘serious claim and a real dispute’: see Jacobson J in Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (No 2) [2009] FCA 42 at [22].

14. In Vagrand Pty Limited (In liquidation) v Fielding and Others (1993) 41 FCR 550 the Full Court observed at 556 as follows:

    The test which has actually been applied is akin to that now used in considering whether interlocutory relief should be granted: “a serious question to be tried”. See Castlemaine Tooheys Limited v. The State of South Australia (1986) 161 CLR 148 at 153, where Mason ACJ made it clear, with reference to the very same question which arose in the context of an interlocutory debate, that the test of “a serious question to be tried” is generally to be preferred to that of “a prima facie case”. It is appropriate that the same standard of proof of the merits should be required for each of these forms of relief. In a particular case an applicant may need both orders. We would think it anomalous if an applicant had to meet a higher requirement merely to commence an action than that necessary to obtain an order potentially imposing a substantial burden on the respondent.

15. The applicants submit that there is a serious question to be tried and that the circumstances warrant the grant of leave.

16. It has been long recognised that a court should grant leave for an applicant to proceed against a company in liquidation where an insurer may have insured a particular risk: see for example Re Sydney Formworks Pty Ltd (In Liquidation) (1965) 82 W.N. 558 where McLelland CJ in Equity in the Supreme Court of New South Wales said of analogous provisions under earlier legislation at 564:

    I am of opinion that the plaintiff should have the opportunity of obtaining the benefits of this section if those benefits prove to be available to him.

17. Such principle has been more recently recognised in Meehan and Another v Stockmans Australian Cafe (Holdings) Pty Limited and Another (1996) 22 ACSR 123 per Lehane J at 127 in which his Honour said that the fact that a company ‘in liquidation is indemnified by insurance against a claim on which leave to proceed is sought is a factor strongly favouring the grant of leave’.

18. In Meehan Lehane J said at 128:

    The starting point must be, I think, that claims for unliquidated damages under the Trade Practices Act, for breach of contract and for tort are admissible to proof. The general rule in relation to such claims is, as with other provable claims, that proceedings on them may not be instituted or continued except with the leave of the Court. A common characteristic of claims of that kind is that there will be disputed questions of fact, there may be some disputed issues of law and there will be questions relating to the assessment of damages. The mere fact that such a claim possesses those common characteristics cannot, I think, mean that it will fall within an exception to the general rule, so that leave to proceed will be given.

    FINDINGS

19. The first respondent was notified of the claim during the period whilst the policy was current, and applying s 40(3) of the Insurance Contracts Act 1984 (Cth), it is not open for the insurer to deny liability because the claim in these proceedings was not instituted until 27 June 2011, namely after the period of insurance expired. The claim has been acknowledged by the insurer, thereby indicating that it has been made fully aware of the nature of the claim.

20. The Fast Track Statement suggests there is a serious question to be tried concerning the valuations made by the first and/or the second respondents. Should the applicants establish a breach of statutory duty as alleged, or negligence against either the first or second respondents, it is apparent that such risks, so far as the first respondent is concerned, may be indemnified under the policy. Accordingly it appears to be in the interests of justice that leave be granted on these grounds so that any indemnity will become available to the applicants. The Court applies the principle referred to in Meehan, namely that the existence of insurance against the claim constitutes a powerful factor favouring the grant of leave.

21. For the above reasons, the Court considers that leave should be granted pursuant to s 500(2) of the CA to enable these proceedings to be continued against the first respondent.

22. Should liability be established against the first respondent, or partly against the first respondent, the provision of s 562 of the CA will apply in respect of the payment of any insurance monies.

I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy.

Associate:

Dated:       22 September 2011