V601 Developments Pty Ltd v Probuild Constructions (Aust) Pty Ltd
[2022] VSCA 77
•2 May 2022
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S EAPCI 2022 0020
| V601 DEVELOPMENTS PTY LTD (ACN 082 670 595) | Applicant |
| v | |
| PROBUILD CONSTRUCTIONS (AUST) PTY LTD (ACN 095 250 945) | Respondent |
---
| JUDGES: | SIFRIS and MACAULAY JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 27 April 2022 |
| DATE OF JUDGMENT: | 2 May 2022 |
| MEDIUM NEUTRAL CITATION: | [2022] VSCA 77 |
---
PRACTICE AND PROCEDURE – Stay – Application for stay of execution of judgment pending application for leave to appeal – No material risk that appeal rendered nugatory in absence of stay – Refusal of stay would not result in discontinuance of application for leave to appeal – No special or exceptional circumstances – Respondent entitled to benefit of judgment – Application for stay dismissed – Challenge Charter Pty Ltd v Curtain Bros (Qld) Pty Ltd (2004) 9 VR 382 applied.
PRACTICE AND PROCEDURE – Respondent company in administration – Leave to proceed required pursuant to s 440D(1)(b) of the Corporations Act 2001 (Cth) – Leave granted for limited purpose of proceeding with stay application – Application for leave to proceed otherwise adjourned – Corporations Act 2001 (Cth) s 440D.
---
| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr N Magee QC with Mr P Baker and Ms J Dodd | Baker McKenzie |
| For the Respondent | Mr N D Hopkins QC with Ms V Bell | King & Wood Mallesons |
SIFRIS JA
MACAULAY JA:
Introduction
V601 Developments Pty Ltd (‘V601’) commenced proceedings against Probuild Constructions (Aust) Pty Ltd (‘Probuild’) in the Trial Division seeking declaratory relief and liquidated damages in the sum of $4,712,519 under a building contract dated 23 May 2011 (the ‘Contract’). Probuild made a counterclaim for damages arising out of various breaches of the Contract and also sought other relief including declaratory relief.
The trial judge dismissed the claim made by V601 and gave judgment in favour of Probuild in the sum of $13,846,409.10 (inclusive of interest) and costs (‘Judgement Debt’).[1] V601 seeks leave to appeal the decision.[2] Pending the application for leave to appeal, V601 seeks a stay of the Orders (‘stay application’).[3]
[1]V601 v Probuild [2021] VSC 849 (‘Reasons’). Orders were made on 12 January 2022 (‘Orders’).
[2]The application for leave to appeal is dated 21 February 2022.
[3]The stay application is also dated 21 February 2022.
Subsequent to the judgment, Probuild was placed into administration.[4] Section 440D(1) of the Corporations Act 2001 (Cth) (‘Corporations Act’) provides that during the administration of a company, a proceeding against that company cannot proceed except with the administrator’s written consent or with the leave of the Court.
[4]Administrators were appointed on 23 February 2022.
In order to proceed with the stay application, V601 therefore requires and seeks the leave of the Court (‘leave to proceed application’). Further, and self-evidently, the stay application is only made in contemplation of an appeal.
Although contending that the requirements for a stay had not been made out, Probuild said that it would not oppose the stay application or the leave to proceed application provided the Judgment Debt was paid into Court (or otherwise secured) and security was given for the costs of the appeal in the sum of $250,000. V601 contended that there should be a stay and leave to proceed without any payment into Court or securing of the Judgment Debt but conceding that it would be appropriate to order security for the costs of the appeal in the sum sought.
Probuild sought to enforce the Judgment Debt by the issue of a statutory demand under the Corporations Act (the ‘Statutory Demand’).[5] On 1 March 2022, V601 filed an application in the Trial Division to set aside the Statutory Demand. The hearing of that application has been adjourned pending the result of the stay application before us.[6]
[5]The Statutory Demand is dated 10 February 2022.
[6]Orders were made on 22 March 2022 by Efthim AsJ.
In our opinion, leave to proceed should be granted pursuant to s 440D(1)(b) of the Corporations Act for the limited purpose of the stay application. However, in our opinion, for the reasons set out hereunder, the stay application will be dismissed, essentially on the ground that there are no special or exceptional circumstances, an essential requirement in this State.
Background[7]
[7]This summary is taken primarily from the parties’ agreed summary.
By the Contract, V601 (as principal and developer) retained Probuild (as builder), to design and construct a mixed-use development comprising both commercial and residential premises located at 601 Victoria Street, Abbotsford (the ‘Development’) for the sum of $115,864,529.
By an earlier contract dated 20 April 2011 (the ‘Early Works Agreement’), V601 had already engaged Probuild to manage the excavation and foundation works in respect of the Development (the ‘Early Works’). Pursuant to the Early Works Agreement, Probuild was to complete the Early Works by 7 October 2011. The main works under the Contract (‘WUC’) were to commence on 10 October 2011, being the next working day after Probuild was to achieve practical completion of the Early Works (‘Early Works Completion’).
Key provisions of the Contract
Pursuant to cl 9A of the Contract, for each calendar day after 7 October 2011 that the Early Works remained incomplete, there was to be an extension of one calendar day to the ‘Dates for Practical Completion’ of the WUC.
Clause 9A further stated that the WUC were not to be commenced prior to the Early Works Completion, other than in specified circumstances under cl 9A(b).
First Urban Pty Ltd was appointed as project manager (the ‘Project Manager’) under the Contract and its director, John Nave, exercised the functions of the Project Manager as First Urban’s delegate. Those functions were set out in cl 20 and were divided into:
(a) functions to be performed as agent of V601 under cl 20.1 (‘Agent Functions’); and
(b) specified additional functions to be performed under cl 20.2 (‘Independent Functions’).
In particular, the Project Manager’s primary role was as agent of the V601, with the Independent Functions being limited to acting as assessor and certifier in respect of:
(c) whether Probuild was entitled to an extension of time (‘EOT’);
(d) whether Probuild had achieved ‘Practical Completion’;
(e) whether Probuild was entitled to delay damages pursuant to the Contract; and
(f) in the assessment of the price of a ‘Variation’.
In relation to these four Independent Functions, cl 20.2(b) stated that neither party was entitled to give directions to the Project Manager, who:
(g) shall act reasonably and independently of the parties;
(h) shall have regard to the express requirements of the Contract;
(i) shall not have regard to the commercial interests of either party; and
(j) is entitled to consult with either one of or both parties but is not obliged to consult with both parties.
Clauses 32.2 and 32.3 provided for the WUC to be progressed in accordance with the ‘Contractor’s Program’, initially set out in Appendix 5A of the Contract and updated from time to time by Probuild. An updated Contractor’s Program submitted to the Project Manager for approval was to meet further requirements under cl 32.3 and, if approved, would become the ‘Approved Contractor’s Program’ against which the WUC were to be performed, until the approval of any further updated Contractor’s Program.
Where the performance of the WUC was delayed by one of the specified ‘Qualifying Causes of Delay’, Probuild was able to claim an EOT in accordance with cl 34.3. Under cl 34.4(b)(ii), the Project Manager was to determine whether Probuild was entitled to an EOT by assessing whether the relevant delay affected an activity on the critical path of the Approved Contractor’s Program ‘as it existed at the time of the occurrence of the Qualifying Cause of Delay’. Thereafter, cl 34.5 set out that:
(k) the Project Manager was to assess the EOT claim and notify both V601 and Probuild of the granted EOT (if any); or
(l) even if Probuild was not entitled to or had not claimed an EOT, the Project Manager could exercise its discretion to direct an EOT.
Pursuant to cl 34.9, Probuild was entitled to delay damages for each day in respect of which an EOT was awarded. Additionally, cl 34.9(c) set out that Probuild’s entitlement to delay damages was its sole entitlement in respect of any delay or disruption to the WUC, such that any other claim for damages, costs or other compensation (under the Contract or otherwise) was barred.
When the Project Manager was informed of a delay to the WUC, the Project Manager could direct under cl 32.4 that Probuild accelerate the WUC by taking those measures necessary to overcome or minimise the delay. In accordance with cl 32.5, where Probuild would have been entitled to an EOT in respect of any delay that had been overcome or minimised by way of acceleration, it was entitled to claim the reasonable and necessary additional costs and expenses arising from such acceleration, which were to be valued by the Project Manager.
Clauses 36.1 to 36.3 of the Contract permitted the WUC to be varied by direction of the Project Manager, either of the Project Manager’s own accord or in response to a request made by Probuild. In either case, cl 36.4 specified that the variation was not to proceed until the relevant price had been ascertained, either by agreement or following determination by the Project Manager.
The term ‘Date for Practical Completion’ was defined in cl 1 of the Contract to mean the Date for Practical Completion specified in the Annexure to the Contract. However, the definition went on to state that ‘if any EOT for Practical Completion is directed by the Project Manager or allowed in any dispute resolution process … or litigation, it means the date resulting therefrom’.
Part A of the Annexure divided the WUC into eight separable portions (‘SPs’) and, for each SP, set out:
(m) the relevant Date for Practical Completion;
(n) the daily rate of liquidated damages payable by Probuild (under cl 34.7) if Practical Completion of the SP was delayed; and
(o) the daily bonus payment to which Probuild was entitled (under cl 34.8) if Practical Completion was achieved earlier than the relevant Date for Practical Completion.
Matters giving rise to the dispute
Various issues arose during the course of the WUC, with the following being relevant to this application:
(p) the Early Works were not completed by 7 October 2011, such that the parties entered into an agreement to the effect that the WUC was to be commenced on 22 December 2011 (‘9A Agreement’), the further terms of which were disputed;
(q) Probuild submitted EOT claims under cl 34.3 as a result of:
(i) the delay in achieving substantial completion of the Early Works until 25 January 2021 (‘EOT1’);
(ii) ‘Soft Spots’ at the site (‘EOT2A’);
(iii) hydrocarbon contamination at the site (‘EOT3’);
(iv) a variation in respect of ‘Building C’ (‘EOT6’); and
(v) a delay in obtaining town planning endorsement regarding the windows of 15 apartments (‘EOT7’);
(r) in 2013, Probuild claimed that it had accelerated the WUC under cl 32.4 and sought payment of its costs regarding that acceleration, which were refused; and
(s) Probuild also submitted a claim for payment in respect of works that it asserted were a variation, which claim was denied.
The Project Manager determined the Dates for Practical Completion in accordance with the 9A Agreement and his determinations in respect of EOT1, EOT2A, EOT3 and EOT6. The WUC were finally completed on 17 December 2013 and, having certified Practical Completion in respect of each SP, the Project Manager then certified liquidated damages as being payable to V601. Probuild relied on its ‘Notices of Dispute’ under the Contract and refused to pay the liquidated damages, giving rise to the proceeding below.
The proceeding below
V601 commenced proceedings by way of originating process filed on 8 February 2016, seeking payment of liquidated damages as certified by the Project Manager (totalling $4,712,519), plus interest under the Contract. During the course of the proceeding, V601 amended its statement of claim to seek (in the alternative):
(t) declarations as to the Project Manager’s certified Dates for Practical Completion, along with liquidated damages calculated in accordance with those dates; or
(u) declarations as to the appropriate Dates for Practical Completion as determined by the Court, together with liquidated damages calculated in accordance with those dates.
By way of counterclaim, Probuild:
(v) alleged that V601 had breached the Contract by:
(i) failing to approve its updated Contractor’s Programs (‘Updated Programs’) under cl 32.3; and
(ii) failing to award its full entitlements in respect of extensions under cl 9A and cl 34;
(w) sought an award of multiple extensions to the Dates for Practical Completion under both cl 9A and cl 34, plus delay damages totalling $2,627,887;
(x) claimed its costs in respect of the disputed variation ($704,552) and its acceleration of the WUC ($1,834,853); and
(y) sought declarations in respect of the Dates for Practical Completion and the dates on which it achieved Practical Completion, together with associated bonus payments totalling $3,706,896.
The trial before Justice Digby lasted for 14 days, between 11 February 2019 and 6 March 2019. Following the filing and service of written submissions, there were two further days of oral submissions on 13 and 14 June 2019. The trial judge delivered judgment in the proceedings on 22 December 2021 and invited the parties to provide written submissions regarding final orders by 10 January 2022. His Honour then delivered a ruling in respect of the final orders (‘Ruling’),[8] together with the Reasons and Orders on 12 January 2022.
[8]V601 v Probuild [2022] VSC 3.
Reasons and Ruling
Insofar as may be relevant for the purpose of this application, the Reasons dealt with the following issues:
(z) whether the Dates for Practical Completion were to be extended pursuant to cl 9A (and by how many days), thereby impacting on the parties’ entitlements to liquidated damages and bonus payments;
(aa) whether V601 breached the Contract by reason of the Project Manager’s failure to:
(i) approve the Updated Programs, thereby preventing Probuild from submitting compliant EOT claims under cl 34.3; and / or
(ii) award Probuild its full delay and compensation entitlements under the Contract;
(bb) in respect of the assessment of EOTs:
(i) whether the expert evidence given by Mr Lyall (a programming expert) on behalf of Probuild was relevant and admissible;
(ii) whether the Contract permitted the assessment of EOTs on a retrospective basis;
(iii) whether Probuild was delayed in its procurement of the windows for the Development until after endorsed town planning drawings had been obtained; and
(iv) whether Probuild submitted a claim under cl 34.3(d) in respect of glazing variations;
(cc) whether Probuild’s claim for acceleration costs was barred by cl 34.9(c); and
(dd) whether Probuild’s costs of accelerating the WUC constituted loss caused by V601’s alleged breach of the Contract (being the breach set out at 27(b)(ii) above).
In deciding each issue, the judge made numerous findings, both of fact and law. It is neither necessary nor desirable, save to the limited extent set out below, to deal with the findings many of which involve a degree of complexity.
In the Reasons, the judge held that:
(ee) Mr Lyall’s updated WUCP01 program constituted the Approved Contractor’s Program, including for the purposes of assessing Probuild’s EOT entitlements under cl 34.4(b)(ii); and
(ff) the Contract Dates for Practical Completion were to be ‘extended and adjusted’ by the EOTs granted to Probuild under both cl 9A and cl 34.
The judge noted that Probuild’s submissions did not identify its claimed adjusted Dates for Practical Completion. His Honour then invited the parties to make submissions in respect of final orders.
V601 contended that Probuild had failed to adduce any expert evidence establishing its entitlements in respect of both the extension under cl 9A and the EOTs claimed. That is, Mr Lyall’s evidence was in the alternative and established the Dates for Practical Completion if Probuild was awarded either the extension under cl 9A or the EOTs, but not both. Additionally, V601 relied on various facts reflected in Mr Lyall’s evidence that it said were inconsistent with the findings made in the Reasons.
Probuild’s submissions referred to and relied on an email from Mr Lyall dated 2 January 2022, setting out the Dates for Practical Completion incorporating the Early Works extension and EOTs based on the Reasons. V601 objected to this email being adduced as fresh evidence after the delivery of judgment and without being tested under cross-examination.
The judge rejected V601’s submissions, accepted the Dates for Practical Completion produced by Mr Lyall and made orders and declarations as sought by Probuild. His Honour also found that V601 was not entitled to liquidated damages in respect of the delay in achieving Practical Completion of SP3.
Proposed grounds of appeal
V601’s proposed grounds of appeal are as follows:
(1)The trial judge’s findings and conclusions are unsafe and fail to engage with the case advanced by [V601], by reason of:
(a)the delay between the commencement of the final hearing on 11 February 2019 and the delivery of judgment on 22 December 2021;
(b)the trial judge’s error in making findings of fact against the evidence and the weight of the evidence;
(c)the trial judge’s error in failing to give adequate reasons for his findings and conclusions; and
(d) the trial judge’s error in having regard to the irrelevant matter of the Project Manager’s independence in resolving the dispute;
(2)The trial judge erred in awarding [Probuild] an extension to the Dates for Practical Completion pursuant to cl 9A of the Contract, namely by:
(a)his Honour’s erroneous conclusion (at [Reasons] 722) that the parties did not agree to deal with delay to Early Works Completion, beyond 21 December 2011,under cl 34 of the Contract rather than cl 9A;
(b)his Honour’s erroneous conclusion (at [Reasons] 719) that the Respondent was not estopped from seeking any further extension under cl 9A; and
(c)his Honour’s erroneous conclusion (at [Reasons] 756) that the Respondent was not estopped from asserting that Early Works Completion had not been achieved by 25 January 2012.
(3)The trial judge erred in awarding [Probuild’s] claimed EOTs under cl 34 of the Contract, namely by:
(a)His Honour’s erroneous conclusion that [Probuild] had not engaged in disentitling conduct by failing to provide updated programs in accordance with cl 32.2 and 32.3;
(b)his Honour’s erroneous conclusion that the evidence of Mr Lyall was admissible; and
(c)his Honour’s erroneous conclusion that the evidence of Mr Lyall was relevant.
(4)The trial judge erred in awarding [Probuild] its EOT2A, EOT3 and EOT6 claims, namely by adopting the factual conclusions reached by Mr Lyall and imposing on [V601] the onus of proving that those conclusions were incorrect.
(5)The trial judge erred in awarding [Probuild] its claimed EOT in respect of the delay in procurement and installation of the windows for the development, namely by:
(a)his Honour’s erroneous conclusion that [Probuild] was entitled to its EOT7 claim by reason of the delay in town planning endorsement; and
(b)his Honour’s erroneous conclusion that [Probuild] had satisfied the notice requirements of cl 34.4(b)(i) of the Contract in respect of the glazing variations, in circumstances where those variations were not the subject of the EOT7 claim.
(6)The trial judge erred in awarding [Probuild] its claimed acceleration costs, namely by:
(a)his Honour’s erroneous conclusion (at [Reasons] 1307(b)) that cl 34.9(c) did not act as a bar to this claim;
(b)his Honour’s erroneous conclusion (at [Reasons] 408(b)) that [V601] had breached the Contract by reason of the Project Manager’s failure to certify the EOTs and Delay Damages awarded by his Honour; and
(c)his Honour’s erroneous conclusion that the Respondent’s loss, in incurring acceleration costs, was caused by [V601’s] breach of the Contract.
(7)The trial judge erred in his Honour’s [Ruling], namely by:
(a)concluding that Mr Lyall’s email of 2 January 2022 was not new evidence and was therefore admissible; and
(b)dismissing the [V601’s] claim for liquidated damages, without proper consideration.
Leave to proceed – s 400D of the Corporations Act
We propose to grant V601 leave to proceed against Probuild, but only for the limited purpose of the stay application. At the commencement of the hearing, Probuild consented to that course. It is clear that, prior to the hearing, Probuild had considered the issues relevant to the stay application: it filed evidence and made detailed written submissions relating to those issues. If the application for leave to appeal is to go further, the application for leave to proceed will need to be made in the usual way. We will therefore otherwise adjourn the leave to proceed application to a date to be fixed in due course should this be necessary.
Stay application
Applicable principles
In Maher v Commonwealth Bank of Australia,[9] this Court outlined the well-established principles in relation to a stay application:
[9][2008] VSCA 122 (‘Maher’).
Prima facie, a successful party is entitled to the benefit of the judgment obtained below and the presumption that the judgment is correct. The applicant for a stay therefore bears the onus of demonstrating that a stay is justified.
In Cellante and Ors v G Kallis Industries Pty Ltd[10] (‘Cellante’), Young CJ (with whom Brooking J agreed), cited with approval[11] the observation of Mahoney JA (with whom Moffit P and Glass JA agreed) in Re Middle Harbour Investments Ltd (in liq)[12] that:
[10][1991] 2 VR 653.
[11]Ibid 655.
[12](New South Wales Court of Appeal, Mahoney JA, 15 December 1976).
… where an applicant for a stay has not demonstrated an appropriate case but has left the situation in the state of speculation or of mere argument, weight must be given to the fact that the judgment below has been in favour of the other party.
Young CJ concluded that an applicant for a stay under Rule 66.16 must show special or exceptional circumstances to take the case out of the general rule that an appeal does not operate as a stay.
The Court has a wide discretion, which is not circumscribed by rigid rules. It should take into account all the circumstances of the case.
In Scarborough’s v Lew’s Junction Stores Pty Ltd[13] (approved in Cellante), Adam J recognized that special circumstances might exist where a successful appellant would be deprived of the fruits of the appeal if a stay of execution were not granted. In such a case, the appeal might be rendered nugatory.
In Cellante, Young CJ stated that special circumstances would ‘exist where for whatever reason, there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed’.[14]
An appeal could be rendered nugatory in that sense in a variety of ways ...
The prospect that the appeal may be rendered nugatory must be balanced against the principle that the successful party is entitled to the fruits of the judgment. A stay should not be granted unless there is at least an arguable ground of appeal, although otherwise speculation as to the ultimate prospects of success is usually inappropriate.[15]
[13][1963] VR 129.
[14]Cellante [1991] 2 VR 653, 657.
[15]Maher [2008] VSCA 122, [20]–[27] (Dodds-Streeton JA, Redlich JA agreeing at [1]).
V601’s submissions
V601 submitted that the prospect or inevitability of V601 being wound up if a stay is not granted, constitutes, in and of itself and without more, special circumstances. It was submitted that in the event of a successful appeal, V601 would be unable to be restored to the position it is now in. Further, a winding up would, it was submitted, impact on the ability of V601 to pursue its appeal.
V601 contended further that there was no prejudice to Probuild because V601 has no assets, a position well-known to Probuild. The consequence, it was submitted, was that there was no benefit in winding up the company and removing the company from the control of the directors.
Finally, V601 contended that, its proposed grounds of appeal were arguable.
Probuild’s submissions
As already mentioned, Probuild submitted that, if any stay was to be granted, it should only be granted on the condition that the Judgment Debt is paid into Court or otherwise secured, and that security for costs of the appeal be provided in the sum of $250,000. Probuild relied on a decision of this Court in Challenge Charter Pty Ltd v Curtain Bros (Qld) Pty Ltd (‘Challenge Charter’),[16] in which an order to such effect was made, notwithstanding a threat of liquidation against the appellant.
[16](2004) 9 VR 382; [2004] VSCA 66.
However, Probuild’s primary submission was that there are no special or exceptional circumstances to warrant a stay being granted, and it relied on Challenge Charter in which the Court held that the weight to be given to the threat of liquidation (and its consequences) depended on the circumstances of the particular case. Challenge Charter Pty Ltd had no significant assets or business and the liquidator could still pursue the appeal. It was submitted that the facts of Challenge Charter were indistinguishable from the facts of this case and that the authorities relied on by V601 were distinguishable.[17]
[17]McMahon v National Foods Milk Ltd [2008] VSCA 237; Orrong Strategies Pty Ltd v Village Roadshow Ltd [2007] VSCA 320. These cases are distinguishable for the reasons debated in argument. Essentially, in both cases, the threat of personal bankruptcy of a judgment debtor constituted special or exceptional circumstances, thereby enabling the respective companies to benefit from the stay for sensible and practical reasons.
Probuild submitted further that even if special or exceptional circumstances were found to exist, the Court should exercise its discretion to refuse a stay because of the serious injustice it would cause Probuild. Two matters were identified. First, substantial costs would be incurred, only some of which would be secured through the provision of security for the costs of the proposed appeal (as V601 offered to provide via its parent company). Secondly, the administration of Probuild should not be unnecessarily burdened and Probuild should be entitled, in the administration, to enforce the Judgment Debt.
Analysis
In our opinion, there are no special or exceptional circumstances so as to justify a stay.
The proposed grounds of appeal, in effect, seek to re-agitate almost all of the contested factual and legal issues dealt with by the judge. For example, in support of proposed ground 1(b), V601 wishes to contend that the judge’s reliance upon a certain chronology of events as a ‘highly reliable’ representation of the facts, led to the errors more particularly identified in proposed grounds 2–6: not because the facts in the chronology were necessarily wrong, but because they were incomplete. Deciding whether or not that contention is correct would first involve determining whether other asserted facts should have been accepted as established by the evidence and relevant to a finding. Then, each contested finding would need to be analysed to determine whether the additional fact or facts should have altered the finding in a material way. Assessing the strength of a ground as broad as proposed ground 1(b) on these applications is virtually impossible but, of course, it cannot be readily dismissed.
As a consequence and solely for the purposes of the stay application, we are prepared to assume that one or more of the proposed grounds of appeal are arguable. Given the length and complexity of the Reasons (briefly referred to above), the numerous issues involved and the view we have taken, it is undesirable and unnecessary to further assess the proposed grounds of appeal.
We do not accept that a successful appeal by V601 will be rendered nugatory if there is no stay merely because, in all probability, V601 will be wound up as a result of the failure to comply with or set aside the Statutory Demand.
In Challenge Charter, Callaway JA said:
I turn to the threat of liquidation, noting at the outset that there is reason to be cautious in considering the decision of the New South Wales Court of Appeal in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd, on which the appellants relied. Its reasoning is, in part, dependent on Alexander v Cambridge Credit Corporation Ltd and the proposition that it is not necessary for the grant of a stay that special or exceptional circumstances be made out. Even more fundamentally, the decision appears to announce a black and white rule …
In my opinion, the relevance of a threat of liquidation and the weight to be given to it vary from case to case. Sometimes it is significant that a winding-up order will bring a company’s business to an end or diminish the value of its assets or both or that the company, regarded as a legal person, will cease to exist when the winding up is completed. Whatever may be said of Timor Star [the second appellant], none of those considerations has much weight in relation to Challenge Charter. It has no significant business or assets other than the Xanadu [a vessel which the trial judge ‘found was of little or no value’] and the shares in Timor Star. It has only one director and is the wholly-owned subsidiary of another proprietary company. In such a case it is not irrelevant that the liquidator may still pursue the appeal if he or she considers that to be worthwhile. The liquidator would take into account the director’s views and the director would be well placed to assist the liquidator if the appeal proceeded. It is quite wrong to regard it as the director’s appeal. It is the company’s appeal. [The appellants’ counsel] submitted that it was unfair to the director to displace him, but that is not the test. I am not persuaded that it would be unfair to Challenge Charter for a liquidator to evaluate the prospects of its appeal. An unpaid creditor is prima facie entitled to use the processes of company law to recover a debt owing to it and there is a public interest in insolvent companies being wound up.[18]
[18]Challenge Charter (2004) 9 VR 382, 387–8 [16]–[17]; [2004] VSCA 66 (citations omitted).
Challenge Charter was followed in Cook’s Construction Pty Ltd v Stork Food Systems Australia Pty Ltd,[19] in which Keane JA said:
I do not consider that the refusal of a stay will render Cook’s appeal to this Court nugatory. Even if the refusal of the stay were to lead to the receivership or liquidation of Cook, Cook’s substantive rights, if any, against Stork could be pursued on the appeal by the receiver or liquidator of Cook. This would occur if the appeal were assessed by the receiver or liquidator as having worthwhile prospects of success; and no-one here suggests that a receiver or liquidator would not make such an assessment in this case. In these circumstances, the benefit of the successful outcome of any such appeal would enure for the benefit of creditors and contributories of Cook.[20]
[19][2008] 2 Qd R 453; [2008] QCA 322.
[20]Ibid 456 [16] (Keane JA) (McMurdo P agreeing at 454 [2], White AJA agreeing at 464 [39]).
The winding up of V601 will not preclude the application for leave to appeal from proceeding, subject, of course, to the status of Probuild. Success on appeal will result in either setting aside the judgment in favour of Probuild (the subject of the Statutory Demand), or judgment in favour of V601 for its claim, or both.[21]
[21]Or the proceeding may be referred back to the Trial Division.
In each scenario referred to, success on appeal will not, in the relevant sense, be nugatory. The claim by Probuild (the subject of the Statutory Demand) will be set aside. The Judgment Debt will not be provable in the winding up of V601 and will cease to exist upon the termination of the winding up. Success on V601’s claim for liquidated damages will — subject to the financial position of Probuild — enable V601 to terminate the winding up and reap any benefit from the successful appeal. V601 is a special purpose vehicle that ceased trading in 2013 following completion of the Development. Since 2013 its only function has been to conduct this litigation with funding from its holding company. Presumably any benefit from the success of an appeal will be dealt with in the same way as if the company had succeeded on appeal without being wound up.
The winding up, whilst inconvenient, will not, subject to the matters referred to below, render any successful appeal nugatory because a termination of the winding up will substantially restore V601 to the position it was in before. Despite some concerns raised by V601 to which we will turn next, none are sufficient to warrant a stay and displace the ability of a successful party (Probuild) from retaining and pursuing the fruits of a successful judgment after a trial.
V601’s concerns flow from the appointment of a liquidator and Probuild being the major creditor. It was contended that these matters will have a substantial bearing on the application for leave to appeal and will in effect stultify the appeal. For the reasons that follow we do not accept that submission.
The winding up of V601 has no effect on the ability of the company to prosecute the appeal, subject to the granting of leave to do so and depending on the status of Probuild and other relevant matters. However, the appeal will be under the control of the liquidator and not the directors of V601. The liquidator has statutory and general law duties and is obliged to act entirely independently in the discharge of his or her duties.
No doubt, the liquidator will independently assess the prospects of success on the appeal unencumbered by the tortuous history of the litigation. To minimise expenses, the liquidator may use the same solicitors retained by the directors to conduct the appeal. If the liquidator decides to continue with the appeal, then subject to funding, dealt with below, the company (V601) will not be in any materially different position as a result of the winding up, certainly so far as relates to the appeal. If the liquidator decides not to continue with the appeal, whether due to a lack of funding or otherwise, other avenues are available to the directors to progress the appeal, notwithstanding the winding up of V601.
The funding of the appeal, should the liquidator decide to appeal, may be more problematic. The company itself has no funds. Self-evidently, Probuild as the major creditor will not fund the appeal. Litigation funding may or may not be available. It is, of course, open to the parent company to provide such funding, funding that it has in any event undertaken to provide to prosecute the appeal in the event that the stay is granted.
We do not accept that as majority creditor and perhaps the only creditor, Probuild has the ability to control the winding up or the liquidator to such an extent so as to stultify the appeal. There are safeguards available to ensure the independence of the liquidator and minimise or eliminate any influence by the major creditor.
V601 submitted that because it is, to the knowledge of Probuild, impecunious, there is no prejudice to Probuild if a stay was granted because, winding up or not, there is and will be nothing for Probuild to recover. Whether or not the winding up ultimately leads to the payment of any dividend to the particular judgment creditor does not address the fundamental point that an insolvent company, or a company deemed to be insolvent, must in the public interest be wound up.
Further, the fact that the company may only be insolvent because of the judgment debt in question does not take the matter any further. Nor does it qualify the ultimate enquiry whether there are special or exceptional circumstances that warrant a stay. Such an enquiry would ordinarily contemplate the inherent possibility that the existing judgment debt may be set aside following success on appeal.
Further, V601 submitted that a court will only (or at least, more readily) refuse a stay, consigning an impecunious company to being wound up, if there is some malfeasance or other conduct by a director or directors which needs to be independently investigated and could lead to some additional avenue of recovery or other benefit to the judgment creditor. We reject that submission. It flies in the face of the prima facie right of the successful party to the benefit of the judgment and the high onus placed on the applicant for the stay to identify special circumstances as to why the judgment should not be enforced. V601’s submission appears to reverse that onus.
Finally, we do not accept that the threat of or a winding up, by itself, constitutes special or exceptional circumstances, a position repeated and emphasised by V601. Further analysis is required and the circumstance of each case must be considered as clearly set out in Challenge Charter. In this case, as we have sought to demonstrate, in the event of a winding up, the appeal (whether by the liquidator or others), will not be stultified or in the event of success, rendered nugatory.
In all of the peculiar circumstances of this case, including in particular the current non-trading and dormant status of V601 and its lack of assets, a position similar to Challenge Charter, we do not consider that a winding up — a logical and inevitable consequence of a judgment of the Court that Probuild is entitled to enforce — will have the consequences contended for. Whether V601 is wound up or not is for the most part irrelevant to the application for leave to appeal and a stay is neither necessary nor required.
Disposition
Leave under s 440D(1)(b) of the Corporations Act is granted for the limited purpose of the stay application. However, in the exercise of our discretion, the stay application will be dismissed.
---
3
7
0