Vero Insurance Ltd v Kassem - [2011] NSWCA 381

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Vero Insurance Ltd v Kassem [2011] NSWCA 381
Hearing dates: 30 August 2011
Decision date: 13 December 2011
Before: Campbell JA at [1]; Young JA at [123]; Meagher JA at [182]
Decision:
Leave to appeal granted.
Appeal dismissed with costs.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:
BUILDING AND CONSTRUCTION- Home Building Act 1989 s 18E- proceedings for breach of statutory warranty to be commenced within seven years after the completion of the work to which it relates- whether limitation period commences with date of practical completion of the works as a whole or when the work to which the damage relates was completed- limitation period commences upon completion of work to which it relates.

BUILDING AND CONSTRUCTION- damages claim for breach of statutory warranties- mitigation of damage- where the insurer denied liability for the claim for nearly four years- whether the damage became worse during the period that the insurer was denying liability- whether the action of the insurer in not settling the claim was an unreasonable failure to mitigate its damage.

CORPORATIONS- deed of company administration entered into- whether DOCA should be terminated- Corporations Act 2001 (Cth)- whether the DOCA was oppressive or unfairly prejudicial, unfairly discriminatory or contrary to the interests of the creditors of the company as a whole- purpose of a DOCA is to maximise the chances of a company continuing in existence or achieve a better return for the company than would result from an immediate winding up- Court can also take into account the public interest, including the public interest in examination of a company's affairs- possibility of better return from winding up not demonstrated- DOCA not terminated.

CORPORATIONS- voluntary administration- whether person entitled to vote at meeting of creditors when a creditor by subrogation and no just estimate of the value of the claim has been made- whether creditor for nominal sum only or for substantial amount.
SUBROGATION- insurer not entitled to exercise a right of subrogation against a co-insured- developer not an "insured" under the policy of insurance- insurer entitled to claim against developer.
Legislation Cited: Corporations Act 2001 (Cth), ss 9, 435A, 439A, 440D, 444E, 445D, 491, 513A, 513B, 513C, 558G, 558H, 588FE, 588M, 600A, Pt 5.3A
Corporations Regulations 2001, cl 5.3A.07, r5.6.23
Home Building Act 1989, ss 3A, 18B, 18C, 18D, 18E, 92, 103C
Home Building Regulation 1997, cl 42
Uniform Civil Procedure Rules, r51.22
Cases Cited: Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235; 226 ALR 510
Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612
Emanuele v Australian Securities Commission (1995) 63 FCR 54
Kalon Pty Ltd v Sydney Land Corp Pty Ltd (No 2) (1998) 26 ACSR 593
Owners Corporation Strata Plan 64757 v MJA Group Pty Ltd [2011] NSWCA 236
Owners Strata Plan 56587 v TMG Developments Pty Ltd [2007] NSWSC 1364
Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612
Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127
Placer v Dyno [1999] NSWSC 1292
Public Trustee (Qld) v Octaviar Ltd [2009] QSC 202; 73 ACSR 139
Re Data Homes Pty Limited (in liq) [1972] 2 NSWLR 22
Re Octaviar Ltd (No 8) [2010] QCA 45; 77 ACSR 339
Selim v McGrath [2003] NSWSC 927; 47 ACSR 537
Sydney Land Corp Pty Ltd v Kalon Pty Ltd (No 2) (1997) 26 ACSR 42
University of Sydney v Australian Photonics Pty Ltd [2005] NSWSC 412; 53 ACSR 570
Category: Principal judgment
Parties: Vero Insurance Ltd (Appellant)
Ozem Azzam Kassem and Andrew James Barnden as joint administrators of Ungul Properties Pty Ltd (First Respondents)
Ungul Properties Pty Ltd (Second Respondent)
Representation: Counsel:
S D Robb QC and A Lo Surdo (Appellant)
Submitting Appearance by First Respondents
C Harris SC (Second Respondent)
Solicitors:
Mills Oakley Lawyers (Appellant)
Colin Biggers & Paisley Lawyers (Second Respondent)

File Number(s): CA 2010/274964
Decision under appeal

Citation:

Vero Insurance Ltd v Kassem [2010] NSWSC 838

Date of Decision:

2010-07-30 00:00:00

Before:

Barrett J

File Number(s):

SC 2009/289555

Judgment

CAMPBELL JA :

Nature of this Application

In substance this application challenges a decision of Barrett J that a Deed of Company Arrangement (" DOCA ") between Ungul Properties Pty Ltd (" the Developer ") and its creditors should not be terminated under s 445D Corporations Act 2001 (Cth) : Vero Insurance Ltd v Kassem [2010] NSWSC 838; (2010) 79 ACSR 330.

The challenge to Barrett J's decision was brought as though it was an appeal as of right. However there was no affidavit of the type required by UCPR 51.22 establishing the facts by virtue of which there was an appeal as of right. This deficiency was brought to the attention of the applicant on the day of the hearing of the application. The court permitted the matter to proceed as though it were an application for leave to appeal that was listed on the basis of a concurrent hearing.

Leave to appeal is needed because it has not been established that more than $100,000 is involved in the appeal.

As the matter has some complexity, I would propose to grant leave to appeal.

Factual Background

The Building and the Statutory Warranties

In June 1999, the Developer entered into a contract with Lusted Pty Ltd (" the Builder ") under which the Builder agreed to construct a building containing seven residential units in Ocean Parade, Blue Bay NSW.

It was common ground that the construction work that the Builder carried out was " residential building work" within the meaning of the Home Building Act 1989 (" HBA ") , and that under the HBA it could only be carried out by a licensed builder. In very broad terms, but sufficient for the purpose of this application, as at 24 June 1999 s 18B HBA implied certain warranties into every contract to do residential building work of a type that could only be performed by the holder of a licence. In the present case, the contract to do residential building work was between the Developer and the Builder, so those warranties were ones deemed to be given by the Builder to the Developer.

Section 3A HBA provided:

"(1) For the purposes of this Act, an individual, a partnership or a corporation on whose behalf residential building work is done in the circumstances set out in subsection (2) is a developer who does the work.

(2) The circumstances are:

(a) the residential building work is done in connection with an existing or proposed dwelling in a building or residential development where 4 or more of the existing or proposed dwellings are or will be owned by the individual, partnership or corporation, or

(b) the residential building work is done in connection with an existing or proposed retirement village or accommodation specially designed for the disabled where all of the residential units are or will be owned by the individual, partnership or corporation.

(3) A company that owns a building under a company title scheme is not a developer for the purposes of this Act."

It was common ground in the court below and on the appeal that the Developer was a " developer" of the apartments in question, within the meaning of s 3A.

So far as is now relevant, s 18C HBA provided that a person who is the immediate successor in title to a developer who has done residential building work on land is entitled to the benefit of the statutory warranties as if the developer were required to hold a licence and had done the work under a contract with that successor in title to do the work. Section 18D HBA also enabled people who had derived their title through the immediate successor in title to a developer to enforce the statutory warranty, subject to an exception not presently relevant. These sections had the effect that anyone who purchased a unit in the development from the Developer had the benefit of the statutory warranties, and any successor in title of those initial purchasers of the units also had the benefit of the statutory warranties. Furthermore, those people could enforce the statutory warranties against the Builder, and also against the Developer.

The Insurance

Insurance, of the type prescribed by the HBA , was compulsory under the HBA for residential building work. That insurance insured against breaches of the statutory warranties. Section 92 HBA required the insurance to comply with the HBA . Section 103C HBA permitted regulations to be made prescribing the content of the insurance. Clause 42 of the Home Building Regulation 1997 required an insurance contract to provide that the beneficiaries under the contract be (relevantly) a person on whose behalf residential building work covered by the contract is done or is to be done, and a successor in title to any such person. However, clause 42(2) of that Regulation provided that, amongst the persons who were not required to be beneficiaries under an insurance contract was " a developer who does residential building work " .

On 24 June 1999 the applicant (" the Insurer ") issued seven certificates of insurance concerning that development. There was a separate certificate of insurance for each unit in the development. The insurance in question was home owner's warranty insurance, of the type required by s 92 HBA . Each certificate of insurance was addressed to the Builder, identified the Builder as the entity that carried out the work, and named the Developer as the only beneficiary of the insurance in question.

Immediately After Building Completion

On 14 December 2000, the strata plan relating to the building was registered.

Five of the units in the building were sold in the course of 2001. However, at least at that stage, the Developer retained the remaining two units, units 5 and 6.

By 2002 it was apparent that there were some defects in the building.

On 14 August 2003 the various unit-holders in the strata plan made claims, concerning those defects, on the insurance that the Insurer had issued. However the Insurer rejected the claims.

Pre-Administration Litigation

The Owners Corporation then began two actions in the Supreme Court Construction and Technology List, seeking to enforce the statutory warranties. One action was against the Builder. The other was against the Insurer. The action of the Owners Corporation against the Builder did not proceed after the Builder went into liquidation in August 2005.

Ultimately, by June 2007, the Insurer admitted liability for the defects. The Insurer paid a total of $808,621.70 to the Owners Corporation in settlement of the action of the Owners Corporation against it.

The Insurer then arranged for an action against the Developer to be commenced in the Technology and Construction List on 8 October 2007 (" the Proceedings "). It brought the Proceedings in the name of the Owners Corporation and of the owners of the five units in the strata plan other than units 5 and 6. The Proceedings claimed damages equal to the loss that the Owners Corporation and those lot owners claimed they had suffered arising from breach of the statutory warranties. The Insurer caused that litigation to be brought in exercise of the right of subrogation that the Insurer asserted it had acquired as a result of paying out the claims of the Owners Corporation and the relevant five lot owners.

Voluntary Administration Starts

The Proceedings had not got to the stage of hearing when, on 6 May 2009, the First Respondents (" the Administrators ") were appointed as voluntary administrators of the Developer. The appointment of the Administrators stayed the Proceedings, pursuant to s 440D Corporations Act . When the creditors adopted a DOCA on 11 June 2009 a different stay of the Proceedings arose under s 444E Corporations Act , and that stay has never been removed.

On 21 May 2009, the Insurer lodged a proof of debt with the Administrators for $794,012.80. This amount was arrived at by starting from the amount of $808,621.70 that the Insurer had paid by way of indemnity, subtracting an amount of $100,113.80 that the Insurer had received by way of a dividend from the liquidation of the Builder, and adding legal and expert costs of $85,504.90 that had been incurred in the Proceedings. The claimed justification for including those costs and disbursements was that the Insurer had actually paid that amount of costs and disbursements, and the stay of the Proceedings had had the consequence that no order for costs was made in favour of the plaintiffs in the Proceedings.

On 2 June 2009, the Administrators gave notice that a second meeting of creditors of the Developer would be held at 11 am on 11 June 2009. In accordance with s 439A(4)(a) Corporations Act , that notice was accompanied by an Administrator's Report to Creditors also dated 2 June 2009: see [93] ff below. As at 2 June 2009 (and also as at 11 June 2009) there were seven claimants to be unsecured creditors of the Developer, who claimed to be owed a total amount of $858,808.81. That amount was made up as follows:

(a) $45,450 representing debts owed to four persons or entities related to the Developer;

(b) $18,521.01 in respect of a debt owed by the Developer to its solicitors;

(d) $794,012.80 in respect of the Insurer's claim against the Developer.

On 10 June 2009, the Administrators stated that they would admit the Insurer's proof of debt, in the claimed amount "for the purposes of any distributions paid to unsecured creditors" . (It is hard to make sense of this, because voluntary administrators do not make distributions, but that is what they said.) However, they reserved the right to re-adjudicate on the proof of debt if further information became available.

As it happened, further information became available to them. On the afternoon of 10 June 2009 Colin Biggers & Paisley, solicitors for the directors of the Developer, wrote to the Administrators providing them with copies of the pleadings in the Proceedings. Those pleadings had raised some defences to the claim that the Insurer had caused to be brought. Colin Biggers & Paisley's letter also enclosed letters that they had earlier written to the Insurer, when the Proceedings were on foot, putting arguments as to why the Proceedings were bound to fail. Those arguments, which had been raised in the pleadings in the Proceedings, were in essence the limitation argument and the circuity argument that I consider at [52]-[ 68 ] below.

The Meeting of Creditors

The Insurer's solicitor attended the meeting of creditors on 11 June 2009. Ms Vivienne Montgomery, an officer of the Insurer, also attended.

There was an informal meeting before the start of the creditors' meeting proper between the Insurer's solicitor, Ms Montgomery, the solicitor for the directors of the Developer, and the Administrators. At that informal meeting the Insurer's solicitor stated that the Insurer wished to seek an adjournment of up to 45 days to undertake further investigations. He said that if the Insurer was forced to vote that day upon a DOCA that was to be put to the creditors' meeting it would oppose it being approved, seek liquidation and fund the cost of any investigations required. The solicitor for the directors contended that there were significant arguments as to liability, that he briefly outlined. These were the limitation argument and the circuity argument that he had foreshadowed in correspondence with the administrators the preceding day. He also contended that the Insurer's claim was an unliquidated one. For both these reasons he contended that "there are issues as to the admission of the Proof of Debt currently lodged" . He indicated that he would not object to the admission of the Proof of Debt for the purposes of voting with a value of one dollar.

Ms Montgomery had been purportedly appointed as the Insurer's proxy, by a proxy form that had been signed by an "executive manager" of the Insurer. Mr Barnden, one of the Administrators who was to be chairman of the meeting of creditors, decided that the proxy was not valid, and rejected it. However, both the Insurer's solicitor and Ms Montgomery were permitted to attend the meeting of creditors as observers, and were permitted to speak at it.

All six of the other claimants to be creditors of the Developer were present at the meeting of creditors, either in person or by proxy.

Mr Barnden indicated that, even if the Insurer were able to obtain a properly executed proxy, the outcome would be that the majority in value of creditors opposed the DOCA, and a majority in number favoured it. The minutes of the meeting record that the chairman "advised the meeting that if necessary, he would exercise his casting vote in accordance with the opinion set out in the report to creditors dated 2 June 2009 and vote in favour of the [Developer] executing a DOCA."

Mr Barnden declined to put a resolution that the meeting be adjourned, "as all creditors present and entitled to vote have indicated that they would vote against the proposal, and that these creditors hold all the proxies for creditors attending this meeting." A motion to adopt the DOCA was then passed by the unanimous vote of all six creditors present personally or by proxy.

The Judgment Below

Mr C Harris SC appeared both in the court below and on the appeal as counsel for the Developer, apparently on the instructions of the directors, without any challenge being made to the permissibility of his appearing.

In the court below Mr Harris had submitted that the Insurer was not a creditor of the Developer at all. He had submitted that:

the Proceedings had been brought, correctly, against the Developer in the name of the Owners Corporation and the various unit owners;

it was the Owners Corporation and the various unit owners who had the benefit of the statutory warranties, and only they could sue on them;

thus it was only they who had a claim against the Developer concerning the alleged breaches of warranty; and

even if the Insurer had the right, by subrogation, to require the Owners Corporation and the unit holders to exercise their rights arising from the breach of the statutory warranties, that did not suffice to make the Insurer a "creditor" of the Developer within the meaning of Part 5.3A Corporations Act .

The primary judge held that, notwithstanding that its claim against the Developer arose by subrogation, the Insurer had an unliquidated equitable claim against the Developer, and that this sufficed to make the Insurer a "creditor" of the Developer within the meaning of Part 5.3A. No challenge to that aspect of his Honour's decision is made in this appeal.

A " creditor of the company" has standing under s 445D(2) Corporations Act to seek an order terminating a DOCA. Because there is no challenge to the judge's finding that the Insurer is a creditor, there is also no challenge on this appeal to the standing of the Insurer to seek termination of the DOCA.

Regulation 5.6.23 Corporations Regulations 2001 (Cth) provides:

"(1) A person is not entitled to vote as a creditor at a meeting of creditors unless:

(a) his or her debt or claim has been admitted wholly or in part by the liquidator or administrator of a company under administration or of a deed of company arrangement; or

(b) he or she has lodged, with the chairperson of the meeting or with the person named in the notice convening the meeting as the person who may receive particulars of the debt or claim:

(i) those particulars; or

(ii) if required - a formal proof of the debt or claim.

(2) A creditor must not vote in respect of:

(a) an unliquidated debt; or

(b) a contingent debt; or

(c) an unliquidated or a contingent claim; or

(d) a debt the value of which is not established;

unless a just estimate of its value has been made."

The primary judge held that a consequence of Regulation 5.6.23(2) was that the Insurer was not entitled to vote at the meeting of creditors unless a just estimate had been made of the value of its claim.

The judge noted that Mr Barnden, the Chairman of the meeting of creditors, did not make a "just estimate" of the value of the claim of the Insurer. As his Honour correctly observed, there was no need for Mr Barnden to make such an estimate, when he had already decided that the proxy was invalid. However, the judge said that had Mr Barnden made a "just estimate" he would have had regard to the contentions and counter-contentions made to him by the respective solicitors. The judge held that, faced with those contentions and counter-contentions, Mr Barnden "could not reasonably have done otherwise than to make an estimate of a nominal sum that would see Vero entitled to vote but with token power only on any calculation of votes by value": [38].

The primary judge then held that Mr Barnden was not in error in declining to adjourn the meeting. He also held that Mr Barnden had acted correctly in rejecting the proxy of the Insurer. No challenge is made on this appeal to either of those decisions.

In light of the conclusions he had reached to that point, the judge stated at [85] that it was not necessary to consider how Mr Barnden would have exercised his casting vote.

The primary judge's reasons for rejecting the Insurer's claim that the DOCA should be terminated were extremely brief:

"... no reason under any of the paragraphs of s 445D(1) has been shown for the making of an order terminating the Deed of Company Arrangement executed by Ungul pursuant to the resolution of creditors passed on 11 June 2009": [87]

The Grounds of Appeal

The grounds of appeal raise two topics. The first is that the Insurer contends that the primary judge was mistaken in finding that the Insurer was a creditor for a nominal sum only. Instead, the Insurer contends, the primary judge should have found that the Insurer was a creditor for $794,012.80, or some other very substantial amount.

Mr S Robb QC appears for the Insurer on the appeal with Mr A Lo Surdo. Mr Robb submits that the first topic of appeal is relevant even when there is no challenge to the judge's upholding the correctness of Mr Barnden's decision that the proxy was invalid. The relevance arises, he submits, from the court giving greater weight, in deciding whether a DOCA should be terminated, to the views of a substantial creditor than to the views of a creditor for a nominal amount.

It is important to be clear about precisely what the ground of appeal relating to this topic is. There is no appeal against the finding that a "just estimate" of the amount of the Insurer's debt at the time of the creditors' meeting would have been a nominal sum. Rather, the contention is that the court itself should have found that the Insurer was a creditor for $794,012.80 or some other substantial amount and addressed its application to terminate the DOCA on the basis that it was a substantial creditor.

The other topic of the grounds of appeal is whether the DOCA should have been terminated. Part of it is a ground of appeal contending that the judge had given inadequate reasons for his finding that the Insurer had failed to establish grounds for terminating the DOCA.

Insurer a Creditor for a Substantial Amount?

The Loan Agreement

In its defence dated 13 July 2005 to the action that the Owners Corporation had brought against it, the Insurer raised an argument that the Developer owned lots 5 and 6, that the Developer was a " developer" , and thus the Insurer was entitled to exclude liability in relation to claims arising from lots 5 and 6.

On 8 March 2007 the Insurer paid to the Owners Corporation $592,884.20, concerning certain defects in the building in relation to which, by then, the Insurer admitted liability.

On 28 April 2007 a loan agreement was entered between the Owners Corporation, the Developer, and United Pacific Properties Pty Ltd (in the agreement called "the Lender"), a related corporation of the Developer. That agreement contained recitals including:

"The Developer and the Borrower have established that there are significant defects in the Building and have sought rectification from the Builder. The cost of these rectification works is approximately $804,672."

After reciting the liquidation of the Builder, the unlikelihood of the Owners Corporation receiving any distribution from the Builder, the seven Home Owners Warranty insurance policies that had been effected with the Insurer, and that the Owners Corporation had made a claim under those policies, it continued:

"Vero has in response to the claim paid to the Borrower the sum of $592,884.20. The difference between this sum and the amount claimed (namely $211,788) is primarily a consequence of Vero applying what is referred to as the developer's exclusion in the policy of insurance, being a reduction of the amount claimable because the Lender as the developer retained two of the seven units in the Building thereby attracting, in the view of Vero, the provisions of Section 3A of the Home Building Act 1999 [sic] which entitle the insurer to include a developer exclusion clause in Home Owners Warranty insurance policy to enable the insurance to avoid the claim in so far as it relates to units retained by the original developer.

The Borrower has obtained legal advice to the effect that the rectification is required to the common property and not to the individual units retained by the Developer. Accordingly the advice concludes that the developer's exclusion does not apply and that Vero should be responsible for the full cost of the Works."

The operative part of the agreement took the form of a deed, under which United Pacific Properties agreed to lend $211,788 to the Owners Corporation.

On 19 June 2007 (by which date the Developer had ceased to be the owner of units 5 and 6 - [100] below) the Insurer paid the Owners Corporation a further amount of $215,737.50. That brought the Insurer's total payments to the Owners Corporation to $808,621.70.

Mr Robb accepts, for the purpose of the present argument, that the Insurer might have difficulty in showing an entitlement to claim for the whole of the legal costs that it included in its proof of debt. However, he submits that, even discounting or totally ignoring those legal costs, the circumstances of the payment by the Insurer of the claims provide a sound basis for concluding that, even if it is not owed the precise amount for which it submitted a claim, it still has a proper claim for many hundreds of thousands of dollars, in consequence of which it is by far the largest creditor of the Developer. He points out that the Developer is party to the loan agreement, and submits that the recitals to the loan agreement are a significant admission on the part of the Developer that there were indeed defects, and what the cost of rectification of the building was.

Mr Harris does not directly dispute those submissions, but submits that their force is removed by the circuity argument, the limitation argument, and the mitigation of damage argument, to which I now turn.

The Circuity Argument

By its response in the Proceedings, the Developer raised an argument that, if correct, would provide it with a total defence to the claim of the Insurer. It contended that:

- it was an insured under the home warranty insurance policy, because the insurance certificate expressly identified it as beneficiary and stated that cover would be provided to the beneficiary "and successors in title to the beneficiary" ;

- the various owners of units who were bringing the proceedings were successors in title of the Developer;

- the plaintiffs were thus also insureds under the home warranty insurance policy, and

- thus the Insurer could not exercise its right of subrogation against the Developer as a co-insured under the insurance policy.

In a letter dated 29 January 2008 to the solicitors for the Insurer, the solicitors for the Developer justified this argument by reference to Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127 and Placer v Dyno [1999] NSWSC 1292 at [162] and [164]. Those cases provide authority that if an insurer has indemnified an insured, A, the insurer has no right of subrogation entitling it to bring an action against B in the name of A, if A and B are co-insureds under the same insurance policy issued by the insurer.

By a cross-claim raised in the present proceedings, the Developer raised the same argument, in effect that the Insurer was not entitled to exercise a right of subrogation against a co-insured. It was contended that any proceedings in which the Insurer sought to exercise such a right of subrogation against the Developer were "bound to be dismissed so as to avoid circuity of action" .

The Insurers deny the first step in the argument set out at [52] above. As permitted by the Regulation controlling the contents of insurance policies under the HBA ([10] above), the policy wording relating to the various certificates of insurance that the Insurer had issued included an exclusion no 7:

"We have no liability to you whatsoever if you are a developer (as defined in the Act) in relation to the work."

In addition, the words "you" and "your" when used in the policy were defined to mean the "person on whose behalf the work under the contract is being done, together with any successor in title to that person" .

In The Owners of Strata Plan 56587 v TMG Developments Pty Ltd [2007] NSWSC 1364 Einstein J considered, and rejected, an argument somewhat similar to the present argument concerning circuity of action. That case related to a policy wording that differed somewhat from the provisions of the policy involved in the present case (see at [6]), and certificates of insurance that were issued on 15 June 1997 (see at [12]). However, the policy that was relevant in Owners Strata Plan 56587 v TMG Developments contained a provision, somewhat similar to clause 7 of the present policy, that excluded from the scope of the cover a person who was "named as the developer in your application form" . At [39]-[41] Einstein J held that that clause had the effect that, when the insurer claimed to be subrogated to the rights of an owners corporation to sue a developer for breach of the statutory warranties, the situation was not one in which the insurer was claiming to be subrogated to the rights of one insured against a co-insured.

An appeal to the Court of Appeal was commenced against the decision of Einstein J in TMG . That appeal was settled by consent orders made on 29 January 2009 providing for the appeal to be dismissed. Thus the decision of Einstein J remains undisturbed.

I accept that clause 7 of the policy involved in the present case likewise has the effect that the Developer was not an insured under the policy of insurance. Thus it was open to the Insurer to be subrogated to whatever rights the Owners Corporation, and the purchasers of units in the development, had against the Developer for breach of the statutory warranties.

This produces the odd result that at the time the insurance was issued it identified the Developer as the beneficiary, but in fact the liability of the Insurer to the Developer was excluded. That oddity is explained by the Developer being at that time the owner of the entire building, and thus the only entity to whom a policy could issue. The legislative purpose in requiring the insurance to be in place was not to provide cover to a developer such as the Developer. Indeed, the legislation specifically permitted an insurer to exclude liability to a developer, as the Insurer actually did. The legislative purpose was instead to ensure that the insurance was in place for the eventual purchasers of dwellings in the building.

For these reasons, the "circuity argument" provided no reason why the Insurer could not prove for a substantial amount of money.

The Limitation Argument

Section 18E Home Building Act 1989 required proceedings for a breach of a statutory warranty to be commenced within seven years after (relevantly here) "the completion of the work to which it relates" .

The response of the Developer filed in the Proceedings contended that the claims of the plaintiffs for breaches of statutory warranties, " or parts of those claims " , were barred by virtue of section 18E. A letter dated 10 June 2009 from the solicitors for one of the directors of the Developer to one of the administrators repeated that contention. That letter recognised that the Proceedings were commenced on 8 October 2007, but asserted that the "works were completed prior to 8 October 2000" .

That pleading, and that letter, were provided to the Administrators before the creditors meeting, but the argument contained in them was not expanded upon at that time.

In the court below, and on this appeal, Mr Harris submitted that the defects in the units were nearly all the result of water penetration into the building, caused by defective waterproofing and drainage. He submitted that, concerning any breach of statutory warranty that caused those defects, "the work to which it relates" was the work involved in waterproofing and drainage. He submitted that neither Mr Barnden at the time of the creditors' meeting, nor the court at the time of the hearing, had a basis for knowing when that particular work had been completed, and hence there was a real issue about whether the claims for those particular breaches of statutory warranty were statute barred.

On 20 December 2000, the architect for the project certified that practical completion was achieved on 14 December 2000. It seems, from the fairly terse terms of the certificate, that it was the entire building project that was certified to be completed on that date. Mr Robb submits that the court has no basis other than the certificate of practical completion for fixing a start to the running of the limitation period, and that if the relevant limitation period starts with the date of practical completion of the works as a whole then the claim was not statute barred. That is because the Proceedings were begun on 8 October 2007, within seven years from the date of practical completion.

In Owners Corporation Strata Plan 64757 v MJA Group Pty Ltd [2011] NSWCA 236, Young JA (Allsop P and Macfarlan JA agreeing) held at [47] that the time at which work was completed, within the meaning of s 18E, was a question of fact. At [37] Young JA construed "the work" in s 18E " as referring to the work the subject of the claim for defects . " At [44] Young JA approved a remark of Ward J in The Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612 that practical completion was a " relatively clear signpost" that the building work had been completed. However, a " relatively clear signpost" is not decisive, and even ascertainment of a date by which the works had been completed allows the possibility that the date at which the works were completed was some time earlier.

At [4] Macfarlan JA (Allsop P agreeing) rejected the view that the cause of action against a developer commenced to run on the date of completion of the last of the building work undertaken for the developer, even though that last work was done by a different builder or subcontractor to the builder or subcontractor whose work was contended to be defective. Macfarlan JA (Allsop P agreeing) preferred the view that " a subsequent owner acquires a number of causes of action against the developer corresponding with causes of action that the developer has against different building contractors . "

Consistently with this authority, the limitation period concerning any particular item of damage would commence to run when the work to which the damage relates was completed. That is not necessarily the date on which the works as a whole were completed. MJA Group does not enable one to decide just how finely one subdivides the various tasks that went into the totality of the works, to identify " the work to which [a particular claim for breach of warranty] relates ". However it accepts that at least completion of all the work done by the particular contractor or subcontractor who caused the defect can be completion of " the work to which it relates ". This has the potential to create a difficulty for a purchaser of residential real estate, if a defect is caused by the work of a contractor whose tasks are completed long before the works as a whole are complete. That is because it is likely in practice to shorten the time in which someone with the benefit of the warranty must find out about the defects and start legal proceedings. However, that is what MJA Group has held the words to mean.

I would accept Mr Harris' submission that, both at the time of the creditors meeting, and in light of the scanty evidence now before the court, there may well be room for debate about whether the claims for breach of statutory warranty were statute barred. I accept that neither the evidence nor the submissions enables the court to have any feel for the likelihood of that defence being ultimately made out. The significance of accepting those matters is considered further below.

The Mitigation of Damage Argument

Mr Harris also submitted in the court below and on appeal that there was a serious issue about the quantum of any claim that the Insurer might have had, arising from whether it had mitigated its damage. He submitted that the damage to the building had manifested itself in 2002, claims were made on the Insurer in August 2003, yet the Insurer denied liability for the claim for nearly four years. He submits that even if the amount it paid in 2007 to settle the claims was a fair estimate of the then cost of rectification of the defects, the nature of building defects arising through water penetration is such that there is a real question for investigation about whether, and if so to what extent, the damage became worse during the period that the Insurer was denying liability. He submits that, if the damage became worse during the period of the Insurer's delay there is also a real question for investigation about whether the action of the Insurer in not settling the claim for nearly 4 years was an unreasonable failure to mitigate its damage.

Suppose that the damage did become worse during the period of the Insurer's failure to settle the claims. If that were the case, it seems to me that the questions that arise are more complex than Mr Harris submits. The first question is whether any unreasonable delay of the Insurer in settling with its insureds is available by way of defence to the claim, to which the Insurer is subrogated, brought in the name of the Owner's Corporation and the owners of five of the units. In that action any defence of failure to mitigate damage would ordinarily address the position and conduct of those plaintiff owners and perhaps only address the conduct of their insurer to the extent that it explained or affected their position or conduct. Another question is whether there was any such unreasonable delay on the part of the Insurer in this case. The argument on the appeal has not sought to provide an answer to these questions. However, I accept that the general area of discourse, relating to whether the damage to the units worsened in a way that affects the quantum of the claim to which the Insurer is subrogated, is a live topic that would require investigation to ascertain the quantum of the claim the Insurer is entitled to make as a creditor.

Conclusions Regarding Circuity, Limitation and Mitigation Arguments

Though submissions were made to the judge about the circuity argument, the limitation argument and the mitigation argument he decided nothing about them. However, when it is open to this Court to consider the arguments, the absence of a decision on the arguments below will not affect the outcome of the appeal.

I have held that the circuity argument fails. The mitigation argument would, at best, reduce the quantum for which the Insurer was a creditor. The court has been given no factual basis to enable the court to form a view about the correctness of the mitigation argument. Further, we are provided with no factual basis that gives the slightest indication of what the extent of the reduction would be, if the argument were correct. In these circumstances, it is very difficult to decide what weight the court should properly give to the mitigation argument, in assessing the strength of the Insurer's claim to have the DOCA terminated.

The limitation argument is problematic for a different reason. If the argument were correct, the Insurer would not be a creditor at all. Yet the judge has held that the Insurer is a creditor, and there is no appeal against that decision. Mr Harris submitted that the limitation argument should not be regarded as a potential knockout argument, but rather as something that created a cloud over the entitlement of the Insurer. He submitted that that cloud would justify the court in treating the Insurer's views about the desirability of the DOCA being terminated as of less weight than the court would treat those views if there were no such cloud over the entitlement of the Insurer.

I have some doubt about whether even that argument is open to Mr Harris in light of the holding, not appealed against, that the Insurer is a creditor. Further, there is a real question, not gone into in the arguments in this case, about the correct way for the court to approach arguments such as the limitation argument and the mitigation of damage argument in an application to terminate a DOCA. The question arises because the question raised on the appeal is how the court, not the Administrators, should have valued the claim - [42] above. Suppose that there is an argument about the entitlement of someone who claims to be a creditor, and that argument is not able to be resolved on the evidence before the court. Does such an argument mean that there is an unresolved cloud over the claim of the purported creditor which lessens the regard that the court should pay to the views of that purported creditor, or which affects how the vote of that purported creditor, measured by value, compares to the vote of other creditors by value? Or rather, should such questions be approached with the aid of an onus of proof? For instance, if the date of practical completion of the works as a whole is proved, is that date prima facie the date from which a statutory warranty runs, unless the party who asserts that it runs from an earlier date is able to persuade the court that it runs from an earlier date? Similarly, should a litigant asserting that an Insurer has failed to mitigate its damage actually persuade the court that there has been a relevant failure to mitigate damage, and the quantum of any reduction in damages? While proceedings to set aside a DOCA are not to be decided in as summary a way as administrators necessarily must make many of their decisions, in my experience they are usually not run as fully prepared and argued litigation of the topics in dispute. These are difficult questions, and the argument in the present case does not adequately equip the court to decide them.

Rather than delay this judgment and increase the costs by inviting further written submissions on these topics, I propose to proceed, in the factual circumstances of this case, by assuming without deciding that the mitigation argument does not result in any reduction of the amount for which the Insurer is a creditor. Similarly I will proceed by assuming, without deciding, that the limitation argument fails, and thus that the Insurer is a creditor of the Developer for a substantial sum.

Should the DOCA be Terminated?

Applicable Principles for Terminating a DOCA

Section 445D Corporations Act provides:

"(1) The Court may make an order terminating a deed of company arrangement if satisfied that:

(a) information about the company's business, property, affairs or financial circumstances that:

(i) was false or misleading; and

(ii) can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed;

was given to the administrator of the company or to such creditors; or

(b) such information was contained in a report or statement under subsection 439A(4) that accompanied a notice of the meeting at which the resolution was passed; or

(c) there was an omission from such a report or statement and the omission can reasonably be expected to have been material to such creditors in so deciding; or

(d) there has been a material contravention of the deed by a person bound by the deed; or

(e) effect cannot be given to the deed without injustice or undue delay; or

(f) the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be:

(i) oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or

(ii) contrary to the interests of the creditors of the company as a whole; or

(g) the deed should be terminated for some other reason."

The basis of the present application appears to lie in ss 445D(1)(f) and (g).

Because of the presence of s 445D(1)(g), enabling the court to terminate a DOCA if it " should be terminated for some other reason" , the court has a very wide power to decide whether there are circumstances requiring the deed to be terminated. That power, like all statutory powers expressed in broad terms that are conferred on a court, should be exercised bearing in mind the purposes of the legislation.

Part 5.3A of the Corporations Act extends from s 435A to s 451D inclusive. Section 435A provides:

"The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or

(b) if it is not possible for the company or its business to continue in existence-results in a better return for the company's creditors and members than would result from an immediate winding up of the company."

In the present case the Developer has no ongoing business, so (a) does not apply.

Though s 435A sets out the objects of Part 5.3A, Part 5.3A does not operate within its own hermetically sealed compartment of the Corporations Act . Thus, s 435A does not exhaust the statutory purposes that should be taken into account. At its broadest, the Corporations Act has objects that include enabling there to be an artificial entity that is created by registration and recognised as a legal person with limited liability for its actions, of establishing the manner in which that entity is administered, and in particular of articulating standards applicable to its internal administration and its dealings with others. History has demonstrated that allowing the existence of an artificial entity with limited liability, and in which people can invest without participating in the management, can facilitate trade and social wellbeing enormously. Allowing the existence of such an entity also necessarily creates a risk that those administering it will not do so sensibly and thereby waste resources, or will use their position to favour themselves or others who they prefer over people who are investors in the corporation or people who have had dealings with the corporation. Many of the provisions of the Corporations Act express a judgement that the Parliament has made about how a balance should be struck between permitting and encouraging the benefits that corporate activity can bring, while controlling its risks and excesses.

Of particular relevance to the present case are the provisions that permit a liquidator to investigate the affairs of a failed corporation, and provisions that permit a liquidator in a carefully defined set of circumstances to take legal action to undo certain transactions that the corporation has entered in a period of time before its failure. Those provisions are an important part of the controls that are placed, in the public interest, on the freedom of action of corporations and those who manage them. It has repeatedly been held that in deciding whether to terminate a DOCA the court can take into account the public interest, which includes considerations of commercial morality and the interests of the public at large. I collected the authorities in Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235; (2005) 226 ALR 510 at [286]-[291], and will not repeat those passages here. See also Public Trustee (Qld) v Octaviar Ltd [2009] QSC 202; (2009) 73 ACSR 139 at [178]-[180], affirmed on other grounds Re Octaviar Ltd (No 8) [2010] QCA 45; (2010) 77 ACSR 339.

It is common ground between the parties to the appeal that a court decides whether to terminate a DOCA in accordance with the following principles, which are taken from the Insurer's written submissions:

"In considering whether to terminate a deed under s 445D(1)(f) of the Act, the Court does not make a judgment '...founded upon mere possibility or speculation; it makes a determination on the characteristics of the deed as they are seen to be at the date of hearing.' ( University of Sydney v Australian Photonics Pty Ltd (2005) 53 ACSR 579 at [37])

The discretion given by s 445D must be 'untrammelled by any overriding considerations. [One] must look at the whole of the effect of the deed and assess its unfairness, if any, to the plaintiff, but in doing so ... bear in mind the scheme of Pt 5.3A ... and the interests of the other creditors, the company and the public generally."' ( Sydney Land Corp Pty Ltd v Kalon Pty Ltd (No 2) (1997) 26 ACSR 42 approved on appeal: Kalon Pty Ltd v Sydney Land Corp Pty Ltd (No 2) (1998) 26 ACSR 593)

A deed may be set aside under s 445D(1)(f)(ii) where it precludes creditors from receiving the benefit of recovering voidable transactions. ( Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612) It is material 'that most of the votes in support of the DOCAs were by parties having an interest in avoiding an enquiry by a liquidator.' ( Public Trustee (Qld) v Octaviar Ltd (2009) 73 ACSR 139 at [177])

A deed may be set aside under s 445D(1)(g) where there is a public interest in the affairs of a company being examined by a liquidator. It may be considered to be "detrimental to commercial morality' to dispense with the opportunity for the investigation of the affairs of a failed company. ( Re Data Homes Pty Limited (in liq) [1972] 2 NSWLR 22 at 26 per Mason JA; Emanuele v Australian Securities Commission (1995) 63 FCR 54 at 69; Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 226 ALR 510 at [290]-[291]; Public Trustee (Qld) v Octaviar Ltd (2009) 73 ACSR 139 at 192-193)"

Legal Principles Showing the Commercial Point of this Application

It is appropriate to now mention some of the uncontentious legal background to the present application that shows the commercial point, so far as the Insurer is concerned, of seeking to terminate the DOCA.

Clause 5.3A.07 of the Corporations Regulations provides that if the Court makes an order under s 445D terminating a DOCA then the company is taken to have passed a special resolution under s 491 Corporations Act that the company be wound up voluntarily. That resolution is taken to have been passed at the time the Court makes its order.

Section 9 Corporations Act contains a definition of " relation-back day " as being, as applicable to the present case, " the day on which the winding up is taken because of Division 1A of Part 5.6 to have begun " . The provision of Division 1A of Part 5.6 that identifies when a winding up is taken to have begun concerning a company resolving by special resolution that it be wound up voluntarily is s 513B. Section 513B(c) Corporations Act has the effect that, in the present case, the winding up of the Developer would have been taken to have begun or commenced on "the s 513C day" in relation to the administration that ended when the DOCA was executed.

In the present case, it follows from s 513C that "the s 513C day" is the day on which the voluntary administration began. That day was 6 May 2009.

Section 588FE Corporations Act makes voidable, in broad terms:

- an insolvent transaction entered not more than six months before the relation-back day;

- a transaction that is both an insolvent transaction and an uncommercial transaction that was entered not more than two years before the relation-back day;

- a transaction that is an insolvent transaction with a related entity that was entered into, or in respect of which an act was done for the purpose of giving effect to it, not more than four years before the relation-back day, and

- an unreasonable director-related transaction entered not more than four years before the relation-back day.

As appears below, a significant part of the basis upon which the Insurer submits that the DOCA should be terminated is that it wishes to investigate the circumstances in which units 5 and 6 in the development came to be sold by the Developer in November 2006, the circumstances in which the Developer paid a dividend in 2007, and whether the Developer had engaged in insolvent trading.

Four years before the relation-back day is 6 May 2005. Thus, if the sale of the two units or the payment of the dividend were to be an insolvent transaction with a related entity, or an unreasonable director-related transaction, they would be within time for being avoided, if the court were to set aside the DOCA.

Section 558G Corporations Act creates a criminal offence if, in broad terms and so far as relevant in the present case, a person is a director of the company and that company is insolvent at the time it incurs a debt (an expression which includes paying a dividend, or entering into an uncommercial transaction), or the company becomes insolvent by incurring that debt. Certain defences are available under s 558H. Section 588M creates a civil liability on a director who has contravened the s 558G to pay the amount of the debt. If the payment of a dividend had occurred at the time the Developer was insolvent, or the sale of unit 5 or 6 was an uncommercial transaction and had occurred at the time the company was insolvent, and the director could not make out a defence, a liquidator would be able to avail of himself or herself of the remedy under s 588M.

The Report to Creditors

Examination of the Insurer's claim that the DOCA should be set aside requires consideration of some more of the factual detail.

The Administrators' Report to Creditors dated 2 June 2009 reported that the Developer had ceased operations around April 2009, following legal advice that litigation brought against the Developer was to proceed to court and that the Developer was not in a position to meet the costs of defending the proceeding without the support of related parties. That litigation was clearly the Proceedings.

By the time of that Report to Creditors the directors of the Developer had proposed a DOCA. In essence, that proposal was for the directors of the Developer to make a payment of $85,000 to create a Deed Fund. Debts owed to directors and other related parties were excluded from those entitled to distributions from the Deed Fund. The Deed Fund would be paid first in satisfaction of the fees and expenses of the Administrators in acting as voluntary administrators and deed administrators, and for associated legal fees and expenses. Those fees and expenses were estimated to amount to $30,000. The Deed Fund would then be applied in payment of outstanding priority creditor claims (of which there appeared to be none), and the balance would be distributed pari passu amongst the admitted creditors of the Developer, excluding the related parties. Those payments would be in full satisfaction of the claims of those creditors. Upon execution of the DOCA the control of the Developer would revert to its directors. After the DOCA was wholly effectuated, the related parties could convert their claims against the Developer to equity.

In the Report to Creditors the Administrators expressed the view that it was in the best interests of creditors to accept the DOCA proposal, as that would allow participating unsecured creditors to receive a greater return than they would be likely to receive if the Developer were to be placed in liquidation.

The Report to Creditors showed that in accounting periods ending on 30 June 2007, 30 June 2008 and 30 April 2009 the Developer had made losses of, respectively, $188,291, $54,166, and $11,116. The accounts showed that the Developer had net assets in those accounting periods of, respectively, $72,574, $12,473 and $1,356. However, the current assets shown in the accounts of the Developer at 30 April 2009, of $66,153, comprised two debts. One debt, in the sum of $11,895, was owed by the Developer's parent company, and was expected to be unrecoverable. The other debt, of $54,258, was owed by Blueseas Estates Pty Limited (" Blueseas "). That debt was said to be of unknown recoverability. This was because the only asset of Blueseas was a deposit paid in connection with a land purchase, where entitlement to that deposit was the subject of litigation. Thus, even if that debt ultimately was to be recoverable, the litigation would involve Blueseas incurring significant legal fees in the meantime and likely result in some delay before any recovery was made.

The Report to Creditors stated that the Administrators had not identified any unfair preferences, uncommercial transactions, fraudulent dispositions or unfair loans. So far as the possibility of there being an unreasonable director-related transaction was concerned, the administrators had identified a dividend paid to shareholders in the year ended 30 June 2007 in the sum of $541,111. The report noted that legal proceedings against the Developer did not begin until October 2007, and that the Developer appeared to have been solvent following payment of the dividend.

The report noted that there was a possibility that the Developer had been trading while insolvent. That possibility arose from the continuous trading losses from and including the year ended 30 June 2007. Against that, however, in each of the years ended 30 June 2007 and 30 June 2008 and further period ended 30 April 2009, the current assets of the Developer as disclosed in its accounts had exceeded its current liabilities. Further, the Administrators expressed no view about the possibility of defences to an insolvent trading claim succeeding. Finally, while one of the directors owned numerous pieces of real estate, the Administrators were unaware of the equity in those properties. The Administrators noted that more in-depth investigations were required to ascertain the merits of commencing an action against the directors of the company for insolvent trading, including investigations concerning the directors' financial capacity to meet any demand made against them.

The report calculated the likely dividend payable to creditors on a basis that admitted the claim of the Insurer in full. The estimated dividend if the creditors adopted the DOCA was 6.76 cents in the dollar, while the estimated dividend if the company went into liquidation was in an optimistic scenario unknown (as it was dependent on there being recovery of money from debtors, voidable transactions and/or insolvent trading claims), and on a pessimistic scenario was nil. If the outcome of a liquidation was unknown because it depended on the success of recovery actions and the Administrators were not in a position to express a view about the prospects of such actions, it is not obvious how the Administrators were able to conclude positively that a DOCA was likely to give unsecured creditors a greater return than liquidation ([95] above). However that puzzle was clearly visible on the face of the Report to Creditors, and is not submitted to provide a basis for termination of the DOCA under s 445D(1)(a) or (c). Overall, the thrust of the Administrators' message was that the prospect of any better outcome for the unsecured creditors from a liquidation was speculative.

The Unit Transfers

By a transfer dated 15 November 2006, the Developer transferred unit 5 in the development to Mr William Pursche for an amount of $1,050,000. By another transfer dated 15 November 2006 the Developer transferred unit 6 in the development to UCH Nominees Pty Ltd, a company of which Mr William Pursche and Ms Michele Pursche are directors, for $500,000. Mr William Pursche is one of the shareholders of the Developer. Ms Michele Pursche is a director and the secretary of the Developer. They both live at the same address.

A handwritten entry in the general ledger of the Developer's company records, alongside an entry relating to the sale of unit 6 for $500,000 "no GST because valuation @ 30.6.00 was > $500k."

On 9 June 2009 the Insurer's solicitor telephoned an officer of the Administrators, informing him that the Developer had sold two units in the development in late 2006, and enquiring whether that was the sale of the property for $1.5m in the financial year ending 30 June 2007 that appeared on page 5 of their report as to affairs. He did not expressly raise any question at that stage about whether the sale of the units was at an undervalue. However, on 10 June 2009 an officer of the Administrators phoned the Insurer's solicitor, and in relation to the sale of the two units said "consideration was paid for those sales. I am seeking more details to ensure an arms length price was paid."

When the Insurer's solicitor raised the transfer of the two properties at the meeting on 11 June 2009, the minutes record that the chairman stated:

"The sale proceeds of $500,000 were deposited into a bank account of a related entity, YACF Pty Ltd, as the [Developer] did not have a bank account, whilst the sale of the other property was made by way of book entry to offset the construction, acquisition, selling and interest costs incurred by YACF Pty Ltd. The balance of these funds in the sum of approximately $634,000 had been used to pay a dividend to shareholders on 22 February 2007, the [Developer's] 2007 Income Tax liability and the Blueseas investment/debt and associated costs."

Mr Robb submits that the entry in the Developer's company ledger, referred to at [101] provides some evidence that the value of that lot at 30 June 2000 was greater than $500,000, and thus that there was a sound basis for further enquiry about whether the sale of the unit, more than six years later, for $500,000 was at an undervalue. He submits that the disposition of the sale proceeds of the units in a manner that is not altogether a regular course of commercial dealing, provides some slight extra reason for investigating the transactions. Mr Robb sensibly disclaims any submission that any inference can be drawn, from the discrepancy in sale price of unit 5 and unit 6, about whether unit 6 was sold at an undervalue, but submits that the discrepancy in price warrants investigation.

Offers of Funding

On 8 May 2009 the solicitor for the Insurer telephoned one of the Administrators. He pointed out that the Proceedings had been on foot for about 18 months, a letter of demand for the damages claimed had been sent before then, and that he was concerned to ensure that there had been no asset divestment. He said:

"To the extent that you require any funding for investigations along these lines, please raise this with us so I can get instructions from my client."

On 10 June 2007 the Insurer's solicitor had a telephone conversation with an officer of the Administrators, in the course of which he foreshadowed that the Insurer would attend the meeting of creditors and seek an adjournment to review the matter further. On being informed that if the Developer was put into liquidation there were no funds available, he said:

"My client and I are aware of this, and my client would likely fund investigations if it voted for the liquidation. Otherwise there would be no point in seeking liquidation."

At the meeting, the Insurer's solicitor said:

"I confirm previous indications that Vero wishes to seek an adjournment of up to 45 days to undertake further investigations as previously indicated. If Vero was forced to vote upon the proposed deed today, it would oppose it being approved, seek liquidation and fund the costs of any investigations required by you."

At the oral argument before Barrett J on 23 June 2010, Mr Robb, who appeared for the Insurer in the court below, referred to this evidence about the offers of funding. Mr Robb informed the judge that the Insurer "remains prepared to fund the liquidator for usual and reasonable costs of enquiries" on whether there were voidable or other transactions which might lead to a better return for creditors. Ms Montgomery, in an affidavit read before Barrett J, had said that Vero was "prepared to forego its distribution under the DOCA and to finance the reasonable investigations of the liquidator should one be appointed to [the Developer]" . Mr Robb told the judge:

"I am instructed to say to the court that if the court were minded to take any course that would lead to an investigation of those transactions as part of the short minutes Vero will make good on the statement in Ms Montgomery's affidavits so that the court is satisfied that there is some clear obligation on Vero to do what it says it will do."

At the hearing of the appeal Mr Robb reiterated that his instructions were that the Insurer would provide reasonable funding to a liquidator to pursue investigations.

Decision

In my view a sufficient basis for terminating the DOCA has not been made out.

The Administrators made further enquiries after the date of the Report to Creditors. These enquiries showed that the solicitors whom the Insurer instructed to bring the Proceedings had sent a letter before action to the Developer in June 2007. The enquiries further showed that the dividend referred to in [97] above had been both paid and declared on 22 February 2007.

It is well established that an administrator must make expeditious decisions about matters such as whether a particular person is entitled to vote at a creditors meeting and if so for how much. The need for speed often results in such decisions being made in a summary fashion. When the court is deciding whether to set aside a DOCA so as to enable further investigation of transactions to take place, the court is not faced with the same need for expeditious decision-making. In the present case the resolution to adopt the DOCA was passed on 11 June 2009, and the originating process commencing the proceedings in the court below was filed on 1 July 2009. The hearing occurred nearly a year later, on 22 June and 23 June 2010.

The evidence that was before the court did not make the court, in any significant way, better informed than the Administrators had been at the time of the meeting of creditors about the circumstances in which the dividend had been paid in February 2007, and the circumstances in which the transfers of the two units had occurred in November 2006. Nor was the court any better informed than the Administrators had been about whether there had been insolvent trading, whether there were any available defences to an action for insolvent trading, or whether the directors would be able to pay any judgment that might be obtained against them.

An applicant for an order to set aside a DOCA to enable further investigations to take place must persuade the court that there is sufficient reason to put to one side the decision of the majority of creditors to adopt the DOCA. That decision of the court is inevitably made by reference to the circumstances of the individual case. However, the court is entitled to take into account, in deciding whether sufficient reason has been shown, the opportunity that the applicant for such an order has had to show that there is a real practical point in conducting the further investigations. Of course, where the point of setting aside the DOCA is to enable further investigations to take place, an applicant for such an order is not to be expected to put the totality of what could be found in such investigation before the court in the form of evidence. As noted above, an administrator must necessarily make decisions on the basis of sometimes skimpy evidence. However, that does not mean that the court is only entitled to require the same sort of evidence if the court is to be persuaded to set aside the DOCA. In the present case, notwithstanding the lapse of nearly a year, the Insurer was not able to provide any more substantial information to the court than was available to the Administrators at the time of the meeting of creditors. That is a fact that tends against granting the present application.

In my view, it is no more than speculation whether the dividend was paid in circumstances that would make it an insolvent transaction or an unreasonable director-related transaction. No reason is put forward as to why the Developer was insolvent at the time of payment of the dividend. In paying the dividend, the company was distributing the profit of a development that had long been completed. The Developer had not received notification at that time that the Insurer might sue it. It is not suggested that the Developer then had any significant debts that it could not pay as they fell due. Further, at 30 June 2007, the closest balance date its current assets exceeded its current liabilities by more than $163,000. Even if that balance was struck by including, as a current asset, the amount of the debts that were in the accounts as at 30 April 2009 and which the Administrators regarded as being unrecoverable or of dubious recoverability ($66,153), there would still have been a surplus of current assets over current liabilities after deducting that amount from the current assets. There has been no examination of the source of the Developer's losses in the financial years ended 30 June 2007, 2008 and 2009. The accounts of the company from the year ended 30 June 2007, the important year for both the payment of the dividend and the transfer of the units, were not in evidence to elucidate the summary financial information contained in the Report to Creditors. That a company incurs a loss in accounting terms during a financial year does not necessarily mean it is insolvent, or that it entered any transaction while insolvent. For example, for part of the year ended 30 June 2007 the Developer was the owner of units 5 and 6, which in the ordinary course could lead to the recognition of depreciation as an expense in its accounts. Sometimes a transaction entered in one financial year can result in a loss coming home, and being recognised in the accounts, only in a subsequent financial year. Of course, insolvent trading can occur not only if the company is insolvent at the time at which it enters a transaction, but also if it becomes insolvent as a result of entering the transaction. However, in the latter type of situation there is often a higher chance of a director being able to establish a defence.

The mere fact of the sale of units 5 and 6 in November 2006 a purchaser associated with the shareholders or directors is an equivocal fact. The Insurer had been contending, in the litigation brought by the Owners Corporation against the Insurer, that the continued retention of units 5 and 6 by the Developer was a reason why the Insurer was entitled to deny liability concerning those units. It would be rational self-protection for those administering the Developer to prevent the reason for the denial of liability continuing. One method to achieve this would be to have the units held by persons other than the Developer. Those persons would then have the benefit of the insurance cover. Further, even if one were to accept that unit 6 had been valued at more than $500,000 as at 30 June 2000, there is no indication of how much more than $500,000 that value was, and thus to what extent the sale price of unit 6 was less than its value at 30 June 2000. More importantly, while in the ordinary course one would expect the value of a residential unit to rise over six years, this particular building stood outside the ordinary course in some respects. As at 30 June 2000 there was no indication that the building had defects and accordingly a valuation as at that date is not likely to have taken account of such defects. By November 2006 it was clear that the building had serious defects. Furthermore, by November 2006 the builder who was responsible for those defects was in liquidation, and the insurer of the defects had rejected a claim. Even worse, from the perspective of a potential purchaser of a unit in the building, the Insurer was continuing to resist litigation. The Insurer's resistance was likely to involve the Owners Corporation (and thus any potential purchaser) in ongoing liability for legal fees of a type that would not need to be met in a building without defects. There was the inevitable risk that the litigation might fail (leaving the plaintiffs in the litigation with a possible liability for the costs of the Insurer). There was a further risk that the litigation might result in an amount being awarded, either by the court or by settlement, that was less than the actual cost of repairing the defects, thus requiring a purchaser to bear that amount himself or herself. Even if the litigation was wholly successful an order for costs was likely to not cover all the solicitor-client costs. These are all matters that would tend to reduce the price for which a unit might otherwise sell. The court was not provided with any evidence of the arm's-length market value of units 5 and 6 in November 2006, nor any evidence about how the Developer, or the purchasers of units 5 and 6, went about striking the price at which they were sold. In these circumstances, it can only be said to be speculative whether any further investigation would show that there was a prospect of setting aside the transfers of units 5 or 6.

No transactions, apart from the dividend and the sale of the units, were pointed to as particular examples of potential insolvent trading.

No undertaking to the court was offered, in so many words, concerning the financing of the liquidator's investigations. However, the way in which Mr Robb put to the primary judge the Insurer's willingness to fund the investigations ([108]-[109] above) should fairly be understood, in the context of it being a statement by experienced commercial counsel to a judge in the corporations list, as indicating a preparedness to offer an undertaking to the court. An undertaking to the court to fund investigations, rather than an informal statement of preparedness to fund investigations, is frequently a prerequisite to a court being willing to set aside a DOCA so that a liquidator can investigate suspicious transactions. It can be taken that both Mr Robb and the judge were aware of that.

The Insurer's written submissions made brief mention of it being an aspect (and by inference an unsatisfactory aspect) of the DOCA that the subordinated claims of related entities could be converted to equity. I do not see the conversion of the subordinated claims to equity as a matter supporting termination of the DOCA. Indeed, if the Developer had been returned to the control of its directors still owing those debts it would not be in a position to engage in any trading or other business activities whatever, without first receiving an infusion of capital, as to do so could involve insolvent trading. Converting those debts to equity is in the public interest, to the extent that it prevents a risk of insolvent trading from arising.

The Insurer submits that the effect of the DOCA remaining on foot is that the wishes of by far the largest creditor are overridden, and creditors who are either related to or friendly to the directors have been able to achieve an outcome in which there is a de facto liquidation of the Developer, without the directors being at risk of having the transactions that they caused the Developer to enter investigated.

On the assumptions on which I am approaching the question of whether to terminate the DOCA, it is correct that the Insurer is by far the largest creditor. However, it is part of the scheme of Part 5.3A that recognition is given to the free choice of creditors, in accordance with the voting rules (that make allowance for voting by reference to both numbers and value) established under Part 5.3A. The choice of the creditors, expressed through that voting procedure, was to enter the DOCA. Good reason needs to be shown why the Court should override that choice. Even with an undertaking by the Insurer to fund investigations, a speculative prospect of there being asset recoveries by a liquidator is not enough to justify termination of the DOCA. The judge was right to decline to do so.

Orders

I propose to that leave to appeal be granted, but that the appeal be dismissed with costs.

YOUNG JA : This is an appeal from a decision of Barrett J who refused an application to set aside a Deed of Company Arrangement (DOCA).

There is doubt as to whether the appeal is competent. There is no affidavit indicating more than $100,000 is at stake. It would seem that under the DOCA, the appellant may well receive 6 cents in the dollar, but under the alternative of liquidation, its recovery is very much dependent on proposed challenges to various transactions with directors in which the Company's assets were allegedly disposed of at undervalue and the fact that a substantial dividend was declared and paid in 2007 when the Company made substantial losses in both 2006 and 2008.

However, when this was pointed out at the commencement of the hearing, it would seem that the second respondent did not wish to take the point, there was the possibility that a late affidavit might cure the problem and the appellant filed an application for leave to appeal as a back up measure. By consent we then proceeded on the same basis as we would have done on a concurrent hearing of a leave application and the actual appeal.

The first respondents, who have filed a submitting appearance, are the administrators of the DOCA. Under that DOCA, $85,000 was paid into a fund on behalf of Ungal Properties Pty Ltd ("the Company"). That fund was to be used to pay the administrators' and legal expenses of $30,000 plus and the balance of approximately $55,000 to pay a dividend to participating creditors other than those connected with the directors of the Company. Those excepted creditors were given the option in the most probable circumstances to exchange their debt for equity. On consummation of the scheme, the debts were discharged and the Company could resume its activities.

As is well known, a vital part of the process of putting a DOCA in place is the holding of a meeting of creditors. In order to pass the appropriate resolution, there must be a majority in number and a majority in value of the creditors voting for the resolution. Should the majority of creditors in value approve, but not the majority of creditors by number or vice versa, the chairman of the meeting has a casting vote.

In the present case, there were seven alleged creditors present at the relevant meeting. Of these, four were associated with the directors, one was the Company's solicitors and one was its accountant. The seventh was the appellant, whose claim to be a creditor was rejected by the chairman, Mr Barnden, who was one of the administrators.

Having excluded the appellant from voting in respect of being a creditor for $794,012.80, the meeting unanimously approved the DOCA. The creditors voting in favour totalled about $65,000.

The appellant challenged the resolution and sought, inter alia, that the DOCA be terminated pursuant to s 445D of the Corporations Act 2001 (Cth).

The application was heard by Barrett J in the Equity Division of this Court. In a reserved judgment published on 30 July 2010 ([2010] NSWSC 838, reported in (2010) 79 ACSR 330), his Honour rejected the application.

The case before Barrett J also involved the validity of a proxy which the appellant had purportedly given to a Ms Montgomery to represent it at the meeting. The chairman declared that it was invalid and the primary judge upheld that view. There is no appeal on this part of the case.

There was also debate below as to whether the appellant was a creditor. This came about because the appellant was the insurer of building work performed by the Company and had to pay out slightly more than $800,000 on a claim under the policy. When the administration intervened, it was suing the Company by virtue of its rights of subrogation to the rights of the building proprietor for unliquidated damages.

The primary judge found that the appellant was a creditor being a person with an unliquidated equitable claim for damages for breach of warranty. The claim was equitable as any action at law to recover had to be in the name of the building proprietor. However, under the definition in the Act, this was sufficient to make the appellant a creditor for the purposes of Part 5.3A of the Act: see Selim v McGrath [2003] NSWSC 927 at [68]; 47 ACSR 537.

Paragraph [88] of the primary judgment is as follows:

I should formally record, however, that Vero has standing under both s 1321 (as a "person aggrieved") and under s 445D (as, at least, an "interested person"), given the valid claim it had to be recognised as a creditor for the purposes of the meeting, if only for a nominal sum.

There is no appeal from the findings referred to in the previous two paragraphs.

The primary judge's decision on the application to set aside the DOCA was contained in [87] and was simply "no reason under any of the paragraphs of s 445D(1) has been shown for the making of an order terminating" the DOCA.

The appellant in its notice of appeal says a number of times that the primary judge was wrong and should have found that there were grounds for setting aside the DOCA and gave inadequate reasons for taking the opposite view. The notice of appeal does not descend to detail. One has to go to the submissions to find the appellant's substantial grievances.

The second respondent, Ungul Properties Pty Ltd, actively opposes the appeal.

Accordingly, with the comment that appellants must pay strict heed to the requirements necessary to be fulfilled before they have a valid appeal, I will pass to the merits of the appeal.

The appellant's submissions in [25] allege that the primary judge did not make a finding that the appellant was a creditor and did not give any reasons for so doing. I consider this is an overstatement in the light of the findings I have set out earlier in these reasons.

Paragraphs [56] et seq of the appellant's submissions set out the reasons why the judge should have set aside the DOCA. These can be summarised as follows:

A. Under s 445D(1)(f)(i) of the Act, the DOCA was unfairly discriminatory towards the major creditor;

B. Under s 445D(1)(g):

(1) The largest creditor was not considered when the DOCA was adopted;

(2) The appellant was denied the opportunity of a liquidator investigating the Company's affairs;

(3) The exclusion of certain assets was unfair;

(4) The Company had not traded after June 2007 so that there was no business that needed to be preserved.

The appeal was heard on 30 August 2011, Mr S D Robb QC and Mr A Lo Surdo of counsel appearing for the appellant and Mr C Harris SC appearing for the second respondent.

The parties were agreed on the applicable principles of law set out in paragraphs [52]-[55] of the appellant's submissions which I summarise as follows:

A. In considering whether to terminate a deed under s 445D(1)(f) of the Act, the court does not make judgment "founded upon mere possibility or speculation; it makes a determination on the characteristics of the deed as they are seen to be at the date of hearing": University of Sydney v Australian Photonics Pty Ltd [2005] NSWSC 412; 53 ACSR 579, 585 at [37] per Palmer J.

B. As to the discretion given by s 445D, there was quoted back to me what I said in Sydney Land Corp Pty Ltd v Kalon Pty Ltd (No 2) (1997) 26 ACSR 427, 429, "I must approach the discretion I am given under s 445D of the Corporations Law untrammelled by any overriding considerations. I must look at the whole of the effect of the deed and assess its unfairness, if any, to the plaintiff, but in doing so, I must bear in mind the scheme of Pt 5.3A of the Corporations Law and the interests of the other creditors, the company and the public generally". That decision was affirmed by the Court of Appeal, see (1998) 26 ACSR 593.

C. A deed may be set aside under s 445D(1)(f)(ii) where it precludes creditors from receiving the benefit of recovering voidable transactions: Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612, 659. It is material "that most of the votes in support of the DOCAs were by parties having an interest in avoiding an enquiry by a liquidator": Public Trustee (Qld) v Octaviar Ltd ("Octaviar") [2009] QSC 202; 73 ACSR 139, 192 at [177] per McMurdo J.

D. A deed may be set aside under s 445D(1)(g) where there is a public interest in the affairs of a company being examined by a liquidator. It may be considered to be "detrimental to commercial morality" to dispense with the opportunity for the investigation of the affairs of a failed company: Re Data Homes Pty Ltd (in liq) [1972] 2 NSWLR 22, 26 per A Mason JA; Emanuele v Australian Securities Commission (1995) 63 FCR 54, 69 (Full Court) ; Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235; 226 ALR 510, 566 at [290]-[291] per Campbell J; Octaviar at 192-3 .

To point D should be added that, although s 600A of the Corporations Act does not literally apply to the present situation, its flavour is that, generally, the court is justified in the public interest in looking very intently at documents which come into being as a result of the votes of associates of the directors and where other interests have been excluded.

Mr Robb put that the principal ground of the appeal was Ground 3 that the primary judge had erred in finding that the appellant had failed to establish grounds for terminating the DOCA.

As noted above, the determination of this issue was in a single paragraph which merely said that there were no grounds shown for making the order.

This is unusual as, ordinarily, a judge says that the plaintiff urged a, b, c, etc, I reject these and thus find no grounds for doing what the plaintiff seeks.

The explanation of the brevity is probably that the focus of the litigation at first instance was on the validity of the proxy and voting rights, rather than the question before this Court.

Mr Robb started with s 435A of the Corporations Act which sets out the objects of Part 5.3A; viz: (a) to maximise the chances of the company's business continuing; or (b) if that is not possible, to achieve a better return for creditors than would occur in a winding up.

Mr Robb said that as the Company has not traded for some time (a) is irrelevant.

As to (b), independent creditors will receive 6.76 cents in the dollar under the scheme. It is thus necessary to compare this with what they might receive under a winding up.

It is clear that, if the only asset of the Company was what it actually possessed at the date of the resolution, there would be no dividend at all on a winding up. However, the appellant says that there are three transactions which occurred in the years prior to the resolution which a liquidator might unravel and which might produce good money to the Company. The appellant offered to the primary judge and offers to us a statement that it is willing to put a liquidator in funds to investigate these transactions. The offer was not put in the form of an undertaking to the Court.

The Company was a single venture company established to develop a parcel of land by erecting home units on it.

In answer to a question at the meeting, the chairman said that Units 6 and 7 (he meant 5 and 6) were sold in early 2007 to associates of the directors. Unit 5 was sold for $1,050,000 (transfer dated 1 November 2006), Unit 6 for $500,000 (transfer dated 15 November 2006). The $500,000 purchase price was paid into the bank account of a related company, YACF Pty Ltd, as the Company did not have a bank account. The $1,050,000 price was not paid in cash, but there was a book entry made to offset the purchase price over construction and interest costs which had been borne by YACF. The balance of the Company's funds, $634,000, was used to pay income tax, something called the Blueseas investment/debt and a dividend.

The dividend was of $541,111 paid to shareholders on 22 February 2007. The administrators noted that of that sum $247,753 related to the distribution of pre-GST capital reserves.

There was no evidence as to what the true value of the units was at the date of their disposal.

There is no material to show what profits the Company had made in the financial year 1 July 2006 - 30 June 2007, nor was the resolution declaring the dividend in evidence.

The administrators' section 439 report contained a table as to applicable limitation periods which the parties accept as accurate (Blue 261).

We need to determine whether, if we set side the DOCA at the date of this judgment and thus a resolution for creditors' winding up is deemed to have been passed, there would be advantage in a winding up.

Under s 513A any winding up order now made will be taken to have begun on 6 May 2009. This means that no transaction before 6 May 2005 may be upset.

The transactions referred to in [155]-[156] are within the period for a liquidator to review if he or she consider it appropriate. This would be possible in view of the appellant's undertaking to fund the liquidator.

The transactions which the appellant seeks to challenge have some indicia that they are worthy of investigation. However, at present, there is only sketchy material about them and no firm view as to their invalidity can be made.

The appellant says that there is real value in having these transactions fully investigated by an independent liquidator and that if this occurs, there is a reasonable prospect of a creditors' recovery in excess of 6.76 cents in the dollar.

On the evidence before us, there is little to support the view that an investigation many years after the suspect transactions would produce a better result for creditors. The prospects of attaining that result are no more than speculative.

Furthermore the liquidator's costs of investigation might be heavy and even though in the first instance they would be borne by the appellant, they may well be deducted from the proceeds of any recovery. Whether this be so or not, there is insufficient merit in this point to hold that there would be an advantage in a winding up.

There is little point in examining the remaining issues, but I will briefly do so.

As to s 445D(1)(f)(i), there is no doubt that the resolution operated specifically to deprive the appellant of a right to sue for a large debt and to wind up the Company if the debt was not paid.

There is also no doubt that the appellant was the major creditor.

However, it was not established that that right would have produced more dollars and cents than the dividend under the DOCA.

The same comments apply to the position under s 445D(1)(g).

A principal thrust of the second respondent's submissions was that the appellant had not established that it was a creditor and therefore the DOCA could not be said to operate unfairly or in a discriminatory way against a creditor even if the appellant suffered prejudice.

It is difficult to uphold this view in the light of the findings of the primary judge. His Honour determined that the appellant was a creditor in that it had an equitable unliquidated claim which was sufficient for it to satisfy the relevant definition of "creditor".

The second respondent says that there were two perfect defences to the appellant's claim: (1) circuity of action; and (2) the claim was statute barred.

As to circuity of action, to succeed the second respondent would have to show that the decision of Einstein J in Owners Strata Plan 56587 v TMG Developments Pty Ltd [2007] NSWSC 1364, which appears to be on all fours with the present case and was decided in the appellant's favour, was wrongly decided. I can see no material which would incline me to take that view.

As to the limitation defence, this will only succeed if more than seven years passed after completion of the work and the commencement of the action on 8 October 2007. Practical completion was certified to have occurred on 14 December 2000. Practical completion is a good, but not infallible guide as to when work is completed for the purposes of s 18E of the Home Building Act 1989: Owners Corporation SP 64757 v MJA Group Pty Ltd [2011] NSWCA 236. Thus, the probabilities are that this defence would have failed.

In the circumstances there is no point considering whether the primary judge failed to take sufficient account of the public interest in having a liquidator investigate questionable conduct by the directors.

Although the public interest is a relevant matter, unless there is strong prima facie evidence of directors' substantial wrongdoing, there is little purpose in a liquidator conducting investigations and examining directors in a case where there is no great likelihood of monetary recovery. Indeed, it would be an abuse of process to permit such a course merely to satisfy a creditor who felt itself betrayed.

On the evidence before us, there are suspicions raised about what occurred in 2006-7, but there is no strong prima facie case of misconduct.

Thus, both because the appeal has become moot and also because the appellant has not demonstrated that there is a real chance of the appellant being financially better off with a winding up, the appellant must fail.

The result, in my view, is that leave to appeal should be granted but that the appeal must be dismissed with costs.

MEAGHER JA : I have had the opportunity of reading in draft the judgment of Campbell JA. I agree with the orders that he proposes and for the reasons that he gives.

***************

Decision last updated: 13 December 2011

Medium Neutral Citation:	Vero Insurance Ltd v Kassem [2011] NSWCA 381
Hearing dates:	30 August 2011
Decision date:	13 December 2011
Before:	Campbell JA at [1]; Young JA at [123]; Meagher JA at [182]
Decision:	Leave to appeal granted. Appeal dismissed with costs. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	BUILDING AND CONSTRUCTION- Home Building Act 1989 s 18E- proceedings for breach of statutory warranty to be commenced within seven years after the completion of the work to which it relates- whether limitation period commences with date of practical completion of the works as a whole or when the work to which the damage relates was completed- limitation period commences upon completion of work to which it relates. BUILDING AND CONSTRUCTION- damages claim for breach of statutory warranties- mitigation of damage- where the insurer denied liability for the claim for nearly four years- whether the damage became worse during the period that the insurer was denying liability- whether the action of the insurer in not settling the claim was an unreasonable failure to mitigate its damage. CORPORATIONS- deed of company administration entered into- whether DOCA should be terminated- Corporations Act 2001 (Cth)- whether the DOCA was oppressive or unfairly prejudicial, unfairly discriminatory or contrary to the interests of the creditors of the company as a whole- purpose of a DOCA is to maximise the chances of a company continuing in existence or achieve a better return for the company than would result from an immediate winding up- Court can also take into account the public interest, including the public interest in examination of a company's affairs- possibility of better return from winding up not demonstrated- DOCA not terminated. CORPORATIONS- voluntary administration- whether person entitled to vote at meeting of creditors when a creditor by subrogation and no just estimate of the value of the claim has been made- whether creditor for nominal sum only or for substantial amount. SUBROGATION- insurer not entitled to exercise a right of subrogation against a co-insured- developer not an "insured" under the policy of insurance- insurer entitled to claim against developer.
Legislation Cited:	Corporations Act 2001 (Cth), ss 9, 435A, 439A, 440D, 444E, 445D, 491, 513A, 513B, 513C, 558G, 558H, 588FE, 588M, 600A, Pt 5.3A Corporations Regulations 2001, cl 5.3A.07, r5.6.23 Home Building Act 1989, ss 3A, 18B, 18C, 18D, 18E, 92, 103C Home Building Regulation 1997, cl 42 Uniform Civil Procedure Rules, r51.22
Cases Cited:	Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235; 226 ALR 510 Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612 Emanuele v Australian Securities Commission (1995) 63 FCR 54 Kalon Pty Ltd v Sydney Land Corp Pty Ltd (No 2) (1998) 26 ACSR 593 Owners Corporation Strata Plan 64757 v MJA Group Pty Ltd [2011] NSWCA 236 Owners Strata Plan 56587 v TMG Developments Pty Ltd [2007] NSWSC 1364 Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612 Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127 Placer v Dyno [1999] NSWSC 1292 Public Trustee (Qld) v Octaviar Ltd [2009] QSC 202; 73 ACSR 139 Re Data Homes Pty Limited (in liq) [1972] 2 NSWLR 22 Re Octaviar Ltd (No 8) [2010] QCA 45; 77 ACSR 339 Selim v McGrath [2003] NSWSC 927; 47 ACSR 537 Sydney Land Corp Pty Ltd v Kalon Pty Ltd (No 2) (1997) 26 ACSR 42 University of Sydney v Australian Photonics Pty Ltd [2005] NSWSC 412; 53 ACSR 570
Category:	Principal judgment
Parties:	Vero Insurance Ltd (Appellant) Ozem Azzam Kassem and Andrew James Barnden as joint administrators of Ungul Properties Pty Ltd (First Respondents) Ungul Properties Pty Ltd (Second Respondent)
Representation:	Counsel: S D Robb QC and A Lo Surdo (Appellant) Submitting Appearance by First Respondents C Harris SC (Second Respondent) Solicitors: Mills Oakley Lawyers (Appellant) Colin Biggers & Paisley Lawyers (Second Respondent)
File Number(s):	CA 2010/274964
Decision under appeal	Citation: Vero Insurance Ltd v Kassem [2010] NSWSC 838 Date of Decision: 2010-07-30 00:00:00 Before: Barrett J File Number(s): SC 2009/289555