Russo v Vernon Homes Pty Ltd (in Liquidation)
[2024] WASC 191
•21 MAY 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RUSSO -v- VERNON HOMES PTY LTD (IN LIQUIDATION) [2024] WASC 191
CORAM: MASTER RUSSELL
HEARD: 22 FEBRUARY 2024, 14 MARCH 2024 & ON THE PAPERS, FURTHER EVIDENCE FILED ON 22 APRIL 2024
DELIVERED : 21 MAY 2024
FILE NO/S: COR 14 of 2024
MATTER: IN THE MATTER OF VERNON HOMES PTY LTD (IN LIQUIDATION) (ACN 607 265 396)
BETWEEN: PHILLIP ROBERTO RUSSO
Plaintiff
AND
VERNON HOMES PTY LTD (IN LIQUIDATION)
Defendant
Catchwords:
Corporations - Application for leave to proceed with an action against a company in liquidation - 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 | : | Mr C J Sweeney |
| Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Sweeney Legal |
| Defendant | : | No appearance |
Case(s) referred to in decision(s):
Boase v Axis International Management Pty Ltd [No 2] [2012] WASC 334
Hall v Kwik Transport & Crane Hire Pty Ltd (In Liquidation) [2023] WASC 465
Latimer v Cutwood Panels Pty Ltd (in liq) [2012] WASC 408
MASTER RUSSELL:
Introduction
By originating process filed on 1 February 2024, the plaintiff, Phillip Roberto Russo, seeks leave pursuant to s 500(2) of the Corporations Act 2001 (Cth) (Act) to proceed with an existing action in the District Court of Western Australia against the defendant, Vernon Homes Pty Ltd (in liquidation) (Application).
The Application is supported by affidavits sworn by Phillip Roberto Russo on 29 January 2024, Cameron James Sweeney on 12 March 2024 (First Sweeney Affidavit) and 22 April 2024 (Second Sweeney Affidavit), and an outline of submissions filed on 12 March 2024.
The action the subject of the Application is District Court action CIV 4624 of 2021 between the plaintiff, Vernon Homes Pty Ltd (as the first defendant) (Company) and the Company's former director, Curt Ronald Vernon (Mr Vernon) (as the second defendant) (District Court action).
On 9 October 2023, the Company was placed into liquidation by creditors' voluntary winding up, and Mathieu Tribut of GTS Advisory (now Mackay Goodwin) was appointed as liquidator.
The liquidator of the Company has not entered an appearance. However, the liquidator has informed the plaintiff's lawyer that he consents to leave being granted to proceed with the District Court action against the Company. The liquidator has also stated that, should leave be granted, he does not intend the Company to take an active role in defending the District Court action.
Though there is no opposition from the liquidator to the Application, s 500(2) of the Act provides relevantly that, after the passing of a resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with against the company except by leave of the court, and subject to such terms as the court imposes.
The Application was initially listed in the Master's list on 22 February 2024. At that hearing orders were made for the plaintiff to file further evidence. The First Sweeney Affidavit and an outline of submissions in support of the Application were subsequently filed, though not by the time provided in the orders and leaving insufficient time for me to consider them before the adjourned hearing in the Master's list on 14 March 2024.
The Application was adjourned to be determined on the papers. Upon reviewing the affidavits and submissions, I invited the plaintiff to file further evidence in relation to matters referred to in the First Sweeney Affidavit concerning any return to creditors of the Company, the availability of any insurance and the liquidator's position in respect of the Application. The Second Sweeney Affidavit was filed on 22 April 2024 addressing those matters.
Having considered the affidavits and submissions filed in support of the Application, for the reasons that follow, I am satisfied it is appropriate to grant leave to the plaintiff to proceed with the District Court action against the Company. An order will also be made that the plaintiff is not to execute any judgment entered against the Company without leave of the Supreme Court of Western Australia.
The District Court action
The District Court action was commenced by writ of summons filed on 26 November 2021, a copy of which is annexed to the Second Sweeney Affidavit.
It is not necessary to repeat the pleadings in the District Court action in full. What follows is a summary of the plaintiff's claim, which is derived from the statement of claim indorsed on the writ.
On or about 20 April 2018, the plaintiff as owner and the Company as builder entered into a written residential building works contract to build a multi‑storey residential construction situated in Glyde Street, South Perth (Contract).
The Company failed to bring the works to be performed under the Contract to practical completion by the time required under the terms of the Contract.
A default notice was issued to the Company on behalf of the plaintiff on 24 October 2020, requiring the Company to remedy the defaults specified in the notice within 10 working days, failing which the plaintiff would terminate the Contract.
The Company failed to remedy the defaults within the time stated and, on 12 November 2020, the plaintiff gave notice of termination of the Contract to the Company.
By a written contract entered into on about 25 November 2020, the plaintiff engaged a new builder to complete the building works. The new builder completed the building works on 12 August 2021.
The plaintiff claims the amount of $544,011.86 from the Company, being the difference between what it cost to have the alternative builder complete the works and the amount that would have been payable to the Company under the Contract. The plaintiff also claims loss and damage and his reasonable expenses alleged to have been suffered and incurred because of the Company's breach of the terms of the Contract and arising out of its termination.
The plaintiff demanded payment of the amount of $544,011.86 from the Company on 7 October 2021, which the Company has failed to pay.
The plaintiff also claims against Mr Vernon, a director of the Company, pursuant to a Deed of Guarantee entered into between them and the Company on or about 21 July 2020 (Guarantee).
The plaintiff claims that Mr Vernon is liable, as guarantor, for any debt or damages the Company is liable to pay to the plaintiff as a result of its breach, repudiation or termination of the Contract.
The plaintiff claims against the Company and Mr Vernon, as guarantor:
(a)$544,011.86 as a debt due and payable to him by them;
(b)damages in respect of loss, damage and expenses reasonably incurred by him by reason of or arising out of the termination of the Contract;
(c)interest at the rate of 6% per annum pursuant to s 32 of the Supreme Court Act 1935 (WA); and
(d)costs, including legal costs on an indemnity basis against Mr Vernon pursuant to the terms of the Guarantee.
The Company and Mr Vernon admit that the plaintiff and the Company entered into the Contract. They deny that the Company failed to satisfy its obligations under the terms of the Contract or that it was in breach of the Contract, and deny that the plaintiff is entitled to the relief claimed against the Company and Mr Vernon, or to any relief.
Mr Vernon does not admit that he entered into the Guarantee or that it included the terms pleaded by the plaintiff.
By way of counterclaim, the Company claims that the plaintiff wrongfully terminated the Contract and deprived the Company of the ability to complete the Contract, and claims damages alleged to arise from wrongful termination of the Contract. The plaintiff denies the allegations made in the counterclaim and that he is liable to the Company as claimed.
Applicable legal principles
The principles applicable to the grant of leave under s 500(2) of the Act are well established. They were recently summarised by Musikanth J in Hall v Kwik Transport & Crane Hire Pty Ltd (In Liquidation),[1] by reference to the decision of Beech J (as his Honour then was) in Boase v Axis International Management Pty Ltd [No 2][2] and reiterated by his Honour Beech J in Latimer v Cutwood Panels Pty Ltd (in liq),[3] as follows:
(1)Part of the purpose of the requirement for leave is to avoid a company in liquidation being subject to a multiplicity of time consuming and expensive actions.
(2)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.
(3)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.
(4)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 number of damages awarded against it. The court should not give its imprimatur to fruitless proceedings which would involve a waste of time and money.
(5)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.
(6)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.
(7)A claimant seeking leave need only demonstrate a serious question to be tried.
[1] Hall v Kwik Transport & Crane Hire Pty Ltd (In Liquidation) [2023] WASC 465 [14] - [16].
[2] Boase v Axis International Management Pty Ltd [No 2] [2012] WASC 334 [4] ‑ [15].
[3] Latimer v Cutwood Panels Pty Ltd (in liq) [2012] WASC 408 [8] ‑ [14].
I adopt those principles in the determination of this Application.
Disposition
I make no comment on the plaintiff's prospects of succeeding in his claim in the District Court action. However, I am satisfied, having regard to the affidavit evidence and the submissions filed on behalf of the plaintiff, that he has demonstrated there is a serious question to be tried, and that he has grounds to pursue his claim for breach of the Contract against the Company.
The action is well advanced and is to be pursued promptly. It would likely have been entered for trial in late 2023, had the Company not been placed into liquidation. If leave is granted, the plaintiff's lawyer has deposed that the District Court action will be entered for trial.
The liquidator does not oppose the Application and has stated that he does not intend to take an active role in defending the District Court action on behalf of the Company if leave to proceed is granted.
On the information provided by the liquidator to the plaintiff's lawyer, there is no evidence of any prospect of surplus assets in the Company and no insurance cover for the claim. Those are factors which would be a good reason to refuse leave.
The plaintiff understands there is no prospect of recovery from the Company. The plaintiff seeks leave to proceed against the Company in the District Court action as the principal debtor under the terms of the Contract and the Guarantee, so that the plaintiff may recover the Company's liability from Mr Vernon as guarantor under the terms of the Guarantee.
I accept the submission made on behalf of the plaintiff to the effect that permitting the plaintiff to proceed with the District Court action against the defendant will not adversely affect the orderly winding up of the Company.
In the circumstances, and in the absence of any evidence of prejudice to the Company's creditors, I am satisfied that leave to proceed against the Company should be granted.
Conclusion and orders
For these reasons, I will make orders as follows:
(1)The plaintiff has leave pursuant to s 500(2) of the Corporations Act 2001 (Cth) to proceed with the action against the defendant in the District Court of Western Australia, being action CIV 4624 of 2021 between Phillip Roberto Russo (as plaintiff), Vernon Homes Pty Ltd (as first defendant) and Curt Ronald Vernon (as second defendant) (District Court action).
(2)The plaintiff must not enforce any judgment obtained in the District Court action against the defendant, Vernon Homes Pty Ltd (in liquidation) without first obtaining leave of the Supreme Court of Western Australia.
(3)There be no order as to costs of the Application.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AM
Associate to Master Russell
21 MAY 2024
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