Re Link Construction (NSW) Pty Ltd (in liq)

[2016] NSWSC 684

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Link Construction (NSW) Pty Ltd (in liquidation) [2016] NSWSC 684
Hearing dates:	23 May 2016
Decision date:	23 May 2016
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Order that Plaintiff be granted leave to proceed with, and maintain, proceedings against the First Defendant in the District Court of New South Wales with effect from 19 April 2016. Leave granted upon condition that Plaintiff will not seek to enforce any judgment against the First Defendant without leave of the Court.
Catchwords:	CORPORATIONS — Order sought for leave to be granted nunc pro tunc under s 500(2) of the Corporations Act 2001 (Cth) to proceed with claims against company in voluntary liquidation – where application for leave under s 500(2) of the Corporations Act 2001 (Cth) was filed after the expiry of relevant limitation period for the claims in substantive proceedings – whether leave should be granted in circumstances that company defending the substantive proceedings may be indemnified by insurer in respect of the claims – whether if leave is granted nunc pro tunc it should be granted from the date of commencement of the substantive proceedings in circumstances where that may deprive company of limitation defence.
Legislation Cited:	- Corporations Act 2001 (Cth), s 500 - Insurance Contracts Act 1984 (Cth), s 54 - Limitation Act 1969 (NSW) - Sydney Water Act 1994 (NSW), s 45
Cases Cited:	- Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (Receivers and Managers Appointed) (in liq) (No 2) [2009] FCA 42 - Bell Group Ltd (in liq) v Westpac Banking Corporation [2000] FCA 439; (2000) 173 ALR 427 - HFPS Pty Ltd (Trustee) v Tamaya Resources Ltd (in liq) (No 1) [2016] FCA 442 - Oceanic Life Ltd v Insurance and Retirement Planning Services Pty Ltd (in liq) (1993) 11ACSR 516 - Re Gordon Grant v Grant Pty Ltd [1983] 2 Qd R 314; (1983) 7 ACLR 669 - Swaby v Lift Capital Partners Pty Ltd [2009] FCA 749; (2009) 72 ACSR 627
Category:	Principal judgment
Parties:	Sydney Water Corporation (Plaintiff) Link Construction (NSW) Pty Ltd (in liquidation) (First Defendant) Civil Foundations Pty Ltd (Second Defendant)
Representation:	Counsel: S Sykes (Plaintiff) P Riordan (Solicitor - Defendants)   Solicitors: Sparke Helmore (Plaintiff) Thompson Cooper Lawyers (Defendants)
File Number(s):	2016/120346

Judgment – ex tempore

Nature of the application

1. By Originating Process filed on 19 April 2016 the Plaintiff, Sydney Water Corporation (“SWC”) applies, under s 500(2) of the Corporations Act 2001 (Cth) for leave, nunc pro tunc, to maintain proceedings in the District Court of New South Wales which it has commenced against the First Defendant, Link Construction (NSW) Pty Ltd (in liq) (“Link”). The liquidator of Link is on notice of the application, and Link, or the liquidator, appears today by solicitors who, it appears, represent it or them in the proceedings although they are also retained by Allianz Australia Insurance Ltd (“Allianz”), whose interest in the proceedings will emerge below.

The affidavit evidence

2. I will first refer to the affidavit evidence led in support of, and in opposition to, the application, before turning to the applicable legal principles and their application in the present facts. SWC relies on the affidavits of Ms Coventry dated 19 April 2016 and 23 May 2016, who is a solicitor acting for it in the District Court proceedings. She refers to the commencement of those proceedings in the District Court of New South Wales in December 2015 and to the matters to which the proceedings relate. She observes that the proceedings relate to damage to SWC’s assets, being a sewer line, which was caused as a result of building works at Kingsford, which it appears were controlled by Link as head contractor, although they were conducted, or the relevant works were conducted, by a subcontractor. It appears that the District Court proceedings were commenced shortly before the expiry of the limitation period in respect of loss suffered by the damage in January 2010, although this application is brought after the expiry of that limitation period. That matter gives rise to complexities to which I will refer below.

3. Ms Coventry notes that Link was placed in liquidation in March 2012 and she refers to it having held a policy of insurance with Allianz at the relevant time. It is common ground in the proceedings that such a policy existed, although it appears that Allianz has not yet accepted that indemnity attaches under that policy, and there are issues which it may take as to Link’s compliance with policy conditions. Ms Coventry notes that SWC does not accept that Allianz will be able to establish any alleged breach of the relevant policy conditions, or at least that any such breach has caused it any relevant prejudice within the meaning of s 54 of the Insurance Contracts Act 1984 (Cth). By a further affidavit dated 23 May 2016, Ms Coventry refers to a detailed history of attempts to resolve the matter with Link and its subcontractor, Civil Foundations Pty Limited, from the time at which the damage was incurred in April 2010, to the point at which solicitors were engaged by SWC in November 2014, and to correspondence with Allianz and its solicitors after that had occurred.

4. Link, in turn, relies on an affidavit of its solicitor, Mr Lagaida, dated 9 May 2016 which leads formal evidence demonstrating that Link is in liquidation, and that its liquidator has consented to the solicitors retained by Allianz acting for Link for the purpose of opposing this application for leave to proceed.

The applicable legal principles

5. I turn now to the applicable legal principles, and the helpful submissions which have been made by Mr Sykes, who appears for SWC, and Mr Riordan, who appears for Link, in respect of those principles. Section 500(2) of the Corporations Act relevantly provides that, after the passage of a resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against a company except by leave of the Court and subject to such terms as the Court imposes. That section is broadly similar to s 471B of the Corporations Act, which applies in a winding up by the Court, and the courts have applied similar principles in determining whether leave should be granted. In particular, the purpose of the section is to prevent a company’s assets being dissipated by unnecessary litigation and an applicant for leave will be required to show why it could not be left to prove its debt in the winding up: Re Gordon Grant v Grant Pty Ltd [1983] 2 Qd R 314; (1983) 7 ACLR 669.

6. One circumstance in which case law recognises that leave under this section would, in general, be granted is where a claim is likely to be, or is, arguably, covered by insurance: Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (Receivers and Managers Appointed) (in liq) (No 2) [2009] FCA 42 at [42]–[45]. The reasons for that approach are plain enough. First, in the ordinary course, where a claim is covered by insurance, the plaintiff’s interests would not be met by simply lodging the proof of debt in liquidation, since that would not allow access to any insurance which would otherwise be available in respect of the claim. Second, in those circumstances, a judgment in favour of the plaintiff will not dissipate the assets of the company in liquidation, because it will be met by insurance proceeds, if the insurance policy responds to the claim. The liquidator and other creditors will also generally not bear the costs of defending the proceedings, since they would be met by an insurer which granted indemnity in respect of, and defended, the claim.

The parties’ submissions

7. Mr Sykes refers to the history of attempts to resolve the matter in submissions, and points to the nature of the claims now brought by SWC in the District Court of New South Wales, being claims in negligence, breach of contract and/or under s 45 of the Sydney Water Act 1994 (NSW) for damage caused to the sewer pipe. Mr Sykes submits that a serious question to be tried is established. It seems to me that that is the case, and I do not understand Mr Riordan to contend to the contrary. Plainly, a claim in negligence is available where it is alleged that a contractor breached a sewer pipe, poured concrete into the breach, and thereby caused significant damage which was costly to repair.

8. Mr Sykes also refers to the decision in Swaby v Lift Capital Partners Pty Ltd [2009] FCA 749; (2009) 72 ACSR 627 where Gilmour J noted a number of factors which are relevant to whether leave should be granted, including the amount and seriousness of the claim, the degree of complexity of the legal and factual issues, whether the claim has arguable merit, a matter which I have addressed above, and whether the proceedings will result in prejudice to the creditors. As I have noted above, proceedings that are brought in order to access insurance cover of a company in liquidation will not ordinarily result in such prejudice to the creditors. Mr Sykes submits that there will be no prejudice to the liquidators to the extent that the insurance policy responds to the claim. Mr Sykes confirms that SWC does not seek access to assets of Link that would otherwise be available in the winding up, and the grant of leave will be conditional on its not enforcing a judgment without the Court’s leave in any event. It seems to me that Link, its liquidators or its creditors, will not be prejudiced by the District Court proceedings, so far as they will either be defended by Allianz in the exercise of a right of indemnity under the policy, or not defended at all and likely lead to a default judgment, subject to any step that may be taken, as foreshadowed by SWC, to join Allianz if it does not grant indemnity in the proceedings.

9. Mr Sykes also submits that the Court has power to grant leave to maintain the proceedings nunc pro tunc under s 500 of the Act and that that matter is well established. There are, however, more complex issues as to the question of discretion, which I will address below.

10. Mr Riordan, in turn, refers to the history of the proceedings, and submits that there has been significant delay on SWC’s part, and that the leave that is sought should not be granted. It is plain that SWC has not acted promptly in commencing the proceedings, having waited till late in the limitation period to do so. However, that is not unusual in claims of this kind, and it seems to me that SWC should not fairly be criticised for treating litigation as a last resort, to be undertaken only where efforts to resolve the matter by other means have failed. Mr Riordan points to the emphatic language of s 500(2) of the Corporations Act, so far as that it provides that no action or other civil proceeding is to be commenced except by leave of the Court. I accept that that section is, in terms, a prohibition but it is of course qualified by the Court’s power to grant leave and its power to do so nunc pro tunc.

11. Mr Riordan submits that the Court should not “reward” SWC’s knowing failure to comply with s 500 of the Act. He submits that SWC knew that Link was in liquidation and that, in those circumstances, the Corporations Act prohibited proceedings being commenced without leave of the Court. It appears that SWC was at least aware that Link was in external administration, although there appears to have been from time to time a degree of confusion as to the form that that external administration took, and the basis on which any application for leave would need to be brought. However, it does not seem to me that it has been established, and I did not understand Mr Riordan ultimately to press, a contention that SWC, for reasons that could only have been described as perverse, deliberately chose not to take the straightforward step of obtaining leave for the proceedings at the time they were commenced. It does not seem to me that the grant of leave, nunc pro tunc, can be seen as “rewarding” SWC for any conduct in that respect. It does not seem to me that, subject to the questions as to the limitation period to which I will refer below, leave should be declined by reason of the fact that it had not been sought before the proceedings were commenced. Mr Riordan also refers to the fact of delay, but it seems to me that that fact is of limited weight, where steps have been taken somewhat to resolve the claim, albeit without success, over an extended period.

12. Mr Riordan points out that Allianz has not yet agreed to indemnify Link, although it appears that there is common ground that an insurance policy exists, and it is plain that Allianz has an interest in the proceedings, not least because it has caused its solicitors to appear today with the liquidator’s consent. It seems to me the fact that there exists a dispute as to the policy is, if anything, reason why leave should be granted, rather than reason why it should be withheld, because in those circumstances the District Court proceedings will provide an appropriate forum to resolve that dispute, if necessary by the joinder of Allianz in those proceedings. It does not seem to me that I need to be satisfied, in order to grant leave, that the policy will respond to SWC’s proceedings against Link, as distinct from simply that the policy may do so and that the District Court proceedings will provide a proper forum to determine the disputed questions as to that matter. I am satisfied, for the reasons I have noted above, that leave should be granted, because it seems to me that the case is one that could not properly be brought by lodgement of a proof of debt in the liquidation, and where the conduct of the District Court proceedings will provide a proper forum for the determination of claims as between SWC and Link, and, to the extent that Allianz does not grant indemnity, between SWC and Allianz.

13. Finally, Mr Riordan raises the most difficult issue in the application, albeit in the alternative to his primary proposition that leave should not be granted. He submits that there would be prejudice to Link, if leave is granted nunc pro tunc, because Link would be deprived of a limitation defence that may be available if the proceedings are not treated as commenced in December 2015. The suggested prejudice is of a limited character, since it is not suggested, and could not be suggested, that Link (or Allianz) are disadvantaged, from the position which they would have been in had leave been sought in December 2015. Any disadvantage, if it exists, arises only from the proposition that a defence which has become available, because leave was not sought in December 2015, would be extinguished if leave is now granted nunc pro tunc. Mr Riordan submits, in this alternative contention, that if the Court is minded to grant leave under s 500(2) of the Corporations Act, it should do so with effect from 10 May 2016, rather than an earlier date. Mr Riordan places weight on the suggested prejudice to Link, or perhaps in practical terms Allianz, if the leave is granted retrospective effect.

14. As I noted above, the case law makes clear that the Court has power to grant leave, nunc pro tunc, and my attention has been drawn, inter alia, to the decisions in Oceanic Life Ltd v Insurance and Retirement Planning Services Pty Ltd (in liq) (1993) 11 ACSR 516 and Bell Group Ltd (in liq) v Westpac Banking Corporation [2000] FCA 439; (2000) 173 ALR 427 in that respect. These authorities were, in turn, considered by Foster J in HFPS Pty Ltd (Trustee) v Tamaya ResourcesLtd (in liq) (No 1) [2016] FCA 442 (“Tamaya Resources”), where the question was whether his Honour should grant leave nunc pro tunc and, if he did so, whether it should be granted from the point of commencement of an action, or from the date on which the application for leave was granted, or, possibly, from the date of his judgment. His Honour there referred to, and approved, the reasoning in Bell Group Ltd (in liq) v Westpac Banking Corporation above which explained why the failure to seek leave at the point the proceedings were commenced did not preclude the Court from having jurisdiction in a proceeding commenced without leave. His Honour also noted the possibility whether leave had been obtained under s 500(2) of the Corporations Act was not relevant to whether they had been “commenced” for the purposes of a limitation provision. If that view is correct, then it will make no difference in this case, whether leave is granted, nunc pro tunc, from the commencement of the District Court proceedings, or from a particular date, or is granted with prospective effect from today, because in any event the proceedings would then be treated as having been commenced, from the date they were in fact commenced, for the purposes of the relevant statutes of limitation. His Honour there granted leave, nunc pro tunc, for the proceedings to be brought, from the date that the plaintiffs filed their interlocutory application for leave to proceed.

15. I have given consideration to the question whether leave should be granted, nunc pro tunc, from the date of commencement of the District Court proceedings or, nunc pro tunc, from the date of the commencement of the Originating Process for leave, or on the basis that operates prospectively from today. It seems to me that this is not a case of a short delay in the application for leave. It is not, for example, the case that I raised in submissions, where an application for leave was made a day or two after the commencement of the proceedings, and there would be no particular reason to distinguish the position between the date of the application and the date of the commencement of the proceedings. Here, there have been several months’ delay, since the commencement of the proceedings, in seeking leave. It seems to me that an order made, nunc pro tunc, to the date of commencement of the District Court proceedings, has the potential to disadvantage Allianz, if a view is ultimately taken that whether leave was granted in time is relevant to whether the proceedings were commenced in time. To that extent, it seems to me that it would be unfair, in the circumstances, to grant leave that is retrospective to an earlier date than that on which it had been sought.

16. On balance, although with hesitation, it seems to me that the proper course is to grant leave, but nunc pro tunc from the date on which the Originating Process was filed in the application for leave, consistent with the approach adopted by the Federal Court of Australia in Tamaya Resources above. As I noted above, that will in fact make no difference, if the proper analysis for the purposes of the Limitation Act 1969 (NSW) is that the proceedings existed at all relevant times, from the date of their commencement, and will continue to exist so far as SWC will now have leave to continue them.

17. Accordingly, I make the following orders:

1.   Upon condition that the Plaintiff will not seek to enforce any judgment which they may obtain against Link Construction (NSW) Pty Ltd (in liquidation), without leave of the Court, the Plaintiff be granted leave to proceed with, and maintain, the proceedings in the District Court of New South Wales at Sydney bearing matter number 360800 of 2015 against the First Defendant, Link Construction (NSW) Pty Ltd, with effect from 19 April 2016.

2.   The costs of this Originating Process be costs in the cause in the District Court proceedings referred to in order 1.

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Decision last updated: 10 June 2016