Re Marine Engineering Consultants Pty Ltd
[2020] QSC 398
•5 November 2020
SUPREME COURT OF QUEENSLAND
CITATION: Re Marine Engineering Consultants Pty Ltd [2020] QSC 398 PARTIES: VOYAGE MANAGEMENT SYSTEMS PTY LTD ACN
119 604 152 (as substituted for PINE RIVERS
CABOOLTURE AND REDCLIFFE GROUP TRAINING
SCHEME INC IA 042629)(applicant) v
MARINE ENGINEERINGS CONSULTANTS PTY LTD
ACN 101 412 775(respondent) FILE NO/S: BS 6131 of 2020 DIVISION: Trial Division PROCEEDING: Application ORIGINATING Supreme Court of Queensland at Brisbane COURT: DELIVERED EX Orders made and reasons delivered on 5 November 2020 TEMPORE ON: DELIVERED AT: Brisbane HEARING DATE: 5 November 2020 JUDGE: Jackson J ORDER: On the interlocutory application:
1.
The applicant is substituted as the applying creditor on the originating application.
2. The respondent pay the applicant’s costs of the interlocutory application.
On the originating application:
1. Adjourn the hearing of the application to 27 November 2020 in the applications list.
2. Direct the respondent to file any affidavit material by 19 November 2020.
3. Direct the applicant to file any affidavit material in
reply by 25 November 2020.
4. Reserve the costs of the adjournment of the originating application.
CATCHWORDS: CORPORATIONS – WINDING UP – APPLICATIONS FOR WINDING UP BY COURT – WHO MAY APPLY – CREDITORS – APPLICATION FOR SUBSTITUTION AS CREDITOR – where an application to wind up the respondent
shipbuilder was filed on 8 June 2020 by Pine Rivers Caboolture and Redcliffe Group Training Scheme Inc – where the respondent reached an agreement with the applying creditor so that it no longer pursues the application – where the applicant seeks an order that it be substituted as the creditor who has the carriage of the application – where the applicant and the respondent had entered into two contracts for the construction of a vessel – where the applicant relies upon two alleged debts to establish its status as a creditor – whether the
applicant has established on the balance of probabilities that it is a creditor – whether the applicant should be substituted as the applying creditor on the originating application. Corporations Act 2001 (Cth), s 459P, s 465B Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo Y Castaned [1905] AC 6, cited Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525, cited COUNSEL:
N Cooke for the applicant N Shaw for the respondent
SOLICITORS: Thynne + Macartney Lawyers for the applicant
MKW Legal for the respondentJackson J
On the face of it, this is the hearing of two applications. In time, the first is the application to wind up which was filed on 8 June 2020 and which has been before the court on a
number of occasions and adjourned by order to today’s date, ostensibly, according to the
last order, to be heard in the applications list.
The applying creditor for the application to wind up was Pine Rivers Caboolture and Redcliffe Group Training Scheme Inc. The respondent has reached a compromise or agreement with that company or corporation so that it no longer pursues the application.
The second application is one brought by Voyage Management Systems Pty Ltd for an order that it be substituted as the creditor who has the carriage of the application under section 465B where, as in this case, the originating application is one made under section 459P of the Corporations Act 2001 (Cth).
The application to wind up was based on the ground of insolvency by failure to comply with a statutory demand and the applicant, as I will describe, Voyage Management Systems Pty Ltd, in these reasons, seeks to proceed on that ground. The respondent opposes the joinder or substitution of the applicant as applying creditor, on the ground that it is not a creditor within the meaning of the Act.
The applicant relies upon two alleged debts to establish its status as a creditor. It is submitted before me that the application for joinder should be resolved on the footing that the question is whether there was a genuine dispute over either of those alleged debts.
The background to the disputed questions is that the respondent is, or was, a boat or shipbuilder. The applicant and the respondent entered into a first, and then a second
contract for the construction of a vessel to be named “Kelani”.
On 18 January 2019, the parties entered into the first contract. The Kelani was to be and is now a pilot vessel. The contract price was $1,880,998 exclusive of GST. The delivery date was 27 September 2019, that was later extended to 10 December 2019. Relevant to this application, a provision of the first contract provided for liquidated damages for delay or late delivery at the rate of $5000 per day, capped at $150,000.
The respondent did not complete the vessel for the purpose of what was necessary for the delivery date and delivery by 10 December 2002.
On 12 December 2019, the first contract was terminated.
On 16 December 2019, the parties entered into the second contract. In substance, the second contract was to provide for the completion of the work on the unfinished vessel. Under the second contract, the contract price to finish was $303,009.88 exclusive of GST. The delivery date was 21 February 2020, that was later extended by agreement to 26 February 2020.
There was a provision for liquidated damages for delay or late delivery that were agreed at the rate of $10,000 per day, capped at $150,000.
Additional terms of relevance were that the applicant agreed to pay the respondent’s
suppliers directly for some of the equipment that was necessary to do that or finish the vessel. The amount that was agreed to be the maximum for supplying that equipment was to be $243,765 exclusive of GST. Any amount in excess of that sum was to be calculated and to be treated as a deduction from the amount of what was called the handover claim under the second contract, or if that were insufficient, to be treated as a debt due and payable from the respondent to the applicant.
As matters transpired, the Kelani was not completed by 26 February 2020. Ultimately, it was not handed over until 25 June 2020. Although there may be some dispute about the relevant handover date, I proceed on that footing.
The applicant alleges that the two debts that are payable are represented by an amount for the excess over the maximum liability for supplying the agreed equipment of $74,796.80. Second, it submits that there is a debt owing for liquidated damages in the amount of $150,000 for the delay for late delivery between 26 February 2020 and the date on which delivery was ultimately given in June 2020.
The respondent disputes both of the alleged debts.
The applicant relies for the alleged debt of $74,796.80, in particular, upon a document described as a variation order form and identified specifically as buyer variation order number 16 and builder variation order number 16 dated 20 March 2020, that sets out under the description of variation order title progress claims, items that are headed by the description that the contract has changed as follows, and the builder is to proceed immediately with the work described below.
Underneath that heading and under a further heading, that the following progress claim invoices and purchases have been made by the buyer and all costs overruns on these purchases will be deducted from the contract price, is a list of items that are numbered from one through to 125 which resolved into the sum of $74,796.80 which is described
with the words, “debt owing by builder to buyer”, as at 19 March 2020.
That description is then followed by a page headed as adjustment to terms of contract,
which alongside the words, “new contract price”, has an entry negative $74,796.80.
Under that description are a number of other details and a signature by the buyer being by Mr Meyjes, the CEO of the applicant, dated 20 March 2020 and by Mr Owen, who was the managing director of the respondent, dated 20 March 2020, indicating the status of the document as an agreed variation. The applicant relies upon that amount as the amount owing.
The respondent disputes that as the amount owing for the relevant excess, having regard to the terms of the contract. In particular, the respondent relies on clause 3.4 that provides in relation to the supply of equipment I have referred to previously as follows:
“The buyer is to supply all equipment as set out in the MECY-23 Pilot
Boat – Main Equipment Procurement Schedule (MEPS) attached at Annexure A. The buyer’s maximum liability for supplying the equipment
in accordance with the MEPS shall be $243,765 plus GST. In the event
that the costs of the equipment exceed the buyer’s maximum liability, the
amount by which the maximum liability is exceeded shall be deducted from the handover claim to the extent it is sufficient. In the event that the value of the handover claim is not sufficient, the shortfall shall become a
debt immediately due and owing from the builder to the buyer.”
The respondent submits that two consequences flow in from clause 3.4: first, it submits that the amount of $74,796.80 should not be treated as owing, as in the sense of presently payable as at March 2020 because of the provision for it to be set off against the handover claim. I accept that submission. Second, it submits that that amount should be reduced. There are two items that are said to operate in reduction. The first is that under the contract, the last amount that was payable in accordance with the schedule of payments was $50,000 as at handover. The applicant does not dispute that on the evidence before me, credit should be given for that amount, having regard to clause 3.4, if that clause
applies; the second is the respondent submits that Mr Owen’s affidavit identifies a further
variation claim for which credit should be given against the debt in paragraph 17 of Mr
Owen’s affidavit, in particular, paragraph 17.4.
Mr Owen describes that as an agreed variation dated 1 January – June 2020 providing for
an adjustment to the contract price in favour of the respondent in the sum of $20,051.08 plus GST and extending the delivery date by 25 days. The 25 days, he says, is calculated
as the accumulation of the individual delay, breach of the items described in the title –
table of the variation. However, the variation itself, a copy of which is exhibited to his affidavit, is not agreed in the sense that it has been signed as other variations that are agreed have been signed. And at this stage, it appears to be a claim under the contract for a further amount of $20,051 and for an extension of the delivery date. If the further amount of $20,000 were payable, and it is not possible on the evidence before me to ascertain whether or not it should be, that would operate in further reduction of the $74,000 claimed item of debt by the applicant.
However, even if the delivery date were extended by 25 days by reason of that claim, the reality is that there would be more than 15 days of delay in the date of completion before 25 June 2020 which would attract liquidated damages. Mr Owen says in his affidavit at paragraph 18 that other variations have not been allowed or included in the calculation of the debt alleged to be owing to the applicant. However, that is not accurate or correct in relation to the variation he refers to in paragraph 17.1 of his affidavit. The items in that variation which was dated 23 January 2020, being variation order number 15, were included in the 20 March 2020 variation order number 16, to which I have already made reference and do not need to be allowed again. The other item he refers to in paragraph 17.3 is one that has not been priced as far as I can tell and does not seem to represent a monetary amount at this stage.
Nevertheless, having regard to the evidence which I have just described, the conclusion
in relation to the first of the applicant’s claimed debts, to give it the status of creditor is
that there are grounds for reducing the amount that is alleged to be owing to something
less than perhaps $5000.
I proceed, therefore, to the second of the claimed debts, which is for the liquidated damages alleged to be owing under the contract. In that respect, the respondent alleged
in correspondence between the respondent’s solicitor and the applicant’s solicitor that
the relevant clause of the contract that provided for liquidated damages is a penalty, and
unenforceable. That clause is as follows:16.1. The builder will ensure that the vessel is delivered in accordance with the terms of this agreement and by the delivery date. If the vessel is not delivered to the buyer by the date of delivery, then without prejudice to its other rights and remedies, the buyer is entitled to liquidated damages from the builder of $10,000 per day to a maximum of $150,000 (15 days).
16.2. It shall be deemed a material breach of this agreement if the
builder’s performance of the services has not been fully completed
when liquidated damages have reached the maximum rate payable as specified in this clause 16, and the buyer shall be entitled to terminate this agreement with immediate effect upon giving written notice.
16.3. The parties agree that the rate for liquidated damages is a genuine pre-estimate of the loss likely to be suffered by the buyer because of such delay.
In response to the assertion that the clause was a penalty, the applicant’s affidavit material
dealt with some relevant factual background matters. In particular, Mr Meyjes swears that the applicant and Australian Reef Pilots Pty Ltd are part of the same group of companies of which the ultimate holding company is Auriga Group Pty Ltd and that the
company group uses the brand, “Australian Reef Pilots” or “ARP”. Company searches
that are attached to the affidavit show that both Australian Reef Pilots Pty Ltd and the applicant are wholly owned by Navigation Holdings Pty Ltd, a third company, which by inference, must therefore be itself a subsidiary of Auriga Group Pty Ltd.
Mr Meyjes swears that ARP has operated postal pilot vessels and provided ship piloting services in and around the Great Barrier Reef and the Torres Strait for a lengthy period. And that in the course of its business the company group needs to buy new vessels from
time to time. Specifically, he says that the applicant’s contract with the respondent for the construction of Kelani was made in the context of ARP’s operation of a vessel around
Thursday Island for the purpose of transferring ship pilots between locations in the northern waters of Queensland, and that such vessels often complete more than five transfer operations per day for different customers.
The background further was that ARP operated a vessel known as “Dabai”, that due to
its use and age in difficult sea conditions was evidencing some degradation.
The requirements of high maintenance and also those to comply with relevant maritime legislation meant that the Dabai would need eventually, to be decommissioned or replaced with another vessel; hence the contract to construct Kelani.
There is some dispute between Mr Meyjes’ version of events and Mr Owen’s evidence
as to the extent of discussions between the two of them before the second contract was
made in relation to the urgency or purpose of the Kelani’s construction, so far as retiring
Dabai from service. I do not need to resolve and expressly do not resolve any of those disputes.
The background context, however, that was included in Mr Meyjes’ affidavit includes
that ARP has records showing its transfer operations and income from years before the first contract or second contract, including records that show as at or around the date of the second contract, ARP was conducting multiple transfer operations per day. For example, on 17 December 2019 and 18 December 2019, six transfer operations with an average price of $8371 or $8058 respectively were started on each of those days, and the revenue for that day was between $48,000 and $50,000 exclusive of GST in total.
The circumstances, therefore, that were either known to the parties or knowable were that the Kelani was a pilot vessel that was potentially available for use in transfer operations for pilots which could carry or be used for significant commercial advantage per day of the kind that might lead to daily losses if that vessel or no other vessel were available, in substantial amounts, such as those I have identified.
The facts as to those amounts, however, were not specifically known to the respondent,
or there is no evidence to suggest that they were. Mr Meyjes’ affidavit deals in further
detail with the delays that were experienced in the construction of or completion of Kelani and the urgency, from his point of view, of obtaining the vessel, having regard to the desire or need to retire Dabai from service.
As it ultimately turned out, on 25 June 2020, Dabai was given a notice requiring it to cease service until there was a significant upgrade or repair of its engines and the Kelani was available for service within a few days. The intervening few days were met by ARP requesting a competitor to assist with transfer operations. Mr Meyjes also refers to Dabai requiring constant maintenance until its final decommissioning after that notice, in substantial amounts, which could have exceeded or could exceed $150,000.
In response to that, Mr Owens opines that from his experience he considers the estimate loss given by Mr Meyjes to be grossly excessive. He does not accept the maintenance costs of Dabai could have reached $150,000 between the delivery date and the second contract, to the actual delivery date and he does not consider, therefore, that the respondent should be liable for any of those costs. He also opines that the applicant or related companies had or should have had other vessels that they intended to use in the Torres Strait to replace Dabai.
The point though is, for present purposes, not whether the applicant experienced actual or suffered actual losses of $150,000. The point is whether the amount that was agreed to and expressly agreed to as being reasonable in clause 16.3 was in fact, so exorbitant or unreasonable, or extravagant as to amount to a penalty.
The respondent submits in substance that there are three points or reasons why clause 16.1 is a penalty. First, it submits that the clause, properly construed, operates so that it is an additional sum payable for delay or late delivery to damages that may be suffered in fact for delay or late delivery. In my view, that is not a reasonable or open construction of clause 16.1.
Second, the respondent submits that the clause is not a genuine pre-estimate of the
applicant’s probable or possible legitimate interest in the due performance of the second
contract, and is a penalty or included merely to punish or secure the enjoyment of a collateral object, on the footing that if there is a genuine dispute as to that, the applicant should not be accepted as a creditor for the purpose of the application for substitution.
In support of that submission, the respondent submits that the applicant is the contracting party but that the company that might suffer any loss because of unavailability of the Kelani is not the applicant but Australian Reef Pilots Pty Ltd. It is not clear on the evidence, but for present purposes, the assumption could be made in order to test that submission, that Australian Reef Pilots Pty Ltd is the revenue earning company whilst the applicant is, in the group of companies, the company that is to acquire the vessel under the first and second contracts on its construction. In my view, even if that assumption is made, it does not follow that in the light of the facts as to possible losses or damage that might be sustained, that the clause operates as a penalty. In short, in my
view, the relevant question is as to whether the applicant’s interest in the performance of
the second contract was one that was sufficient to justify or warrant the provisions of
clause 16.1.
The contrary view sets up proposition 4(a) of Lord Dunedin’s propositions in the Dunlop
case as discussed in Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525, as if it were a test that must be met by reference to a measure being the greatest loss that could conceivably be proved to have followed from the breach being suffered by the applicant. But as Paciocco shows, more generally, and the discussion of the prior authority of cases considers in detail, the interest that is capable of protection by a clause, such as clause 16.1, in a contract of this kind, is not limited to the pecuniary losses that may be suffered by the company for which the vessel is built directly.
A clear illustration of that proposition is Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo Y Castaneda [1905] AC 6, as discussed in the reasons of a number of the judges in Paciocco, but in particular, reference may be made to the reasons of Gageler J at pages 571 and following, at paragraphs 133 and following, and as also explained in the reasons of Nettle J at pages 627 and following in paragraphs 320 and following.
Further, I would refer to the reasons of Keane J at page 616 in paragraphs 283 and 284, where it is clear that a distinction is drawn between the concept of damage, against which a clause may legitimately protect and the quantum of damages which may be suffered by a party that is not the limit of the scope of a permissible protection by a liquidated damages clause.
The third basis or point advanced by the respondent as to whether there is a genuine dispute as to clause 16.1 operating as a penalty is that the amount of the possible loss or damage that might be suffered in relation to the unavailability of the vessel was not the
amounts that were potentially or in fact experienced, according to Mr Meyjes’ evidence
as losses, including the loss by reason of maintenance or heavy maintenance costs on Dabai. In my view, to focus on those amounts unduly is to confuse the extent of the actual losses with the relevant question, which is, at the time when the contract being the second contract was entered into, what was within the reasonable contemplation of the parties?
Accordingly, in my view, there is no serious question to be decided or genuine dispute that clause 16.1 is invalid because it is a penalty.
In those circumstances, the conclusion which I reached is that the applicant has established on the balance of probabilities that it is creditor and it follows that the relief that it seeks on its application to be substituted as creditor should be granted.
The other application being the originating application to wind up, as I previously
mentioned, was also listed for hearing today. In Mr Owen’s affidavit, he swears in
paragraphs 60 and 61 that the respondent is able to meet all of its debts as and when they
become due and payable, and points out that the applicant’s witnesses have no access to the respondent’s financial records. And he swears that from his knowledge of the
respondent with access to those records it is solvent. He says that if the applicant is substituted as creditor on the application to wind up, he intends to file affidavit evidence
as to the respondent’s solvency in opposition of the originating application.
The applicant submits that the hearing of the application to wind up should proceed and
that Mr Owen’s evidence as to solvency is of no account because it is an opinion sworn
to without giving any basis in fact taken from the financial records of the respondent. In my view, that submission is well-made, however, there was no objection taken at the time of the material being read on the application to either Mr Owen swearing to solvency in an impermissible form or that in paragraph 61, he sought to file affidavit evidence as to solvency.
Surprisingly, at the outset, the respondent did not make it clear that its position was that it sought to have the application to substitute the applicant as the applying creditor dealt with first on the footing that the underlying application for an order to wind up the respondent should not be dealt with.
In submissions at the end of the hearing, or the whole argument of the hearing, the
respondent’s counsel identified that that was the respondent’s position, except that the
respondent sought to reserve the possibility that if the applicant were unsuccessful in obtaining an order, that it be substituted as applying creditor, the respondent would then have applied for the application to wind up to be dismissed.
In my view, that was not an appropriate way to have proceeded on the hearing of the application. Nevertheless, the position was foreshadowed by the paragraph of Mr
Owen’s affidavit that I have identified, and was a matter that I think parties on both sides
should have dealt with, before it was expressly raised.
In the circumstances, with some misgiving, I consider that the respondent should have a further opportunity, although a relatively short one, to put on further affidavit evidence as to solvency, and I would accordingly adjourn the hearing of the application to wind up or as it is otherwise described, the originating application for a period to enable that to happen.
The orders are, on the interlocutory application, (1) the applicant is substituted as the
applying creditor on the originating application; (2) the respondent pay the applicant’s
costs of the interlocutory application. On the originating application, the orders are (1) adjourn the hearing of the application to 27 November 2020 in the applications list; (2) direct the respondent to file any affidavit material by 19 November 2020; (3) direct the applicant to file any affidavit material in reply by 25 November 2020; (4) reserve the costs of the adjournment of the originating application.
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