Wolstenholme v National Express Group Australia (Swanston Trams) Pty Ltd

[2003] VSC 476

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 7658 of 2003

ROBIN WOLSTENHOLME	Plaintiff
V
National Express Group Australia (Swanston Trams) Pty Ltd	Defendant

No 7929 of 2003

ALAN STONE	Plaintiff
V
National Express Group Australia (Bayside Trains) Pty Ltd	Defendant

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JUDGE:	Hansen J
WHERE HELD:	Melbourne
DATE OF HEARING:	17 October 2003
DATE OF RULING:	17 October 2003
CASE MAY BE CITED AS:	Wolstenholme v National Express Group Australia (Swanston Trams) Pty Ltd; Stone v  National Express Group Australia (Bayside Trains) Pty Ltd
MEDIUM NEUTRAL CITATION:	[2003] VSC 476

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CORPORATIONS - Conducting public transport franchises – Passengers – Assault and detention by employees – Corporations under Deed of company arrangement – Claims released – In substitution a right to claim against the available property – Passengers commence claims for damages in the County Court – Leave to proceed – Effect of release on claim – Discretionary considerations – Corporations Act 2001, s 444E(3).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr J Catlin	Hale & Wakeling
For the Defendants	Mr S Whelan Q.C. with Ms K Knights	Holding Redlich

HIS HONOUR:

1. I have two applications before me each of which is for leave to continue with a proceeding brought against a company under a deed of company arrangement.  The cases arise in proceedings 7658 of 2003 and 7929 of 2003.

1. The originating process in proceeding 7658 of 2003 was filed on 15 September by Robin Wolstenholme as plaintiff against National Express Group Australia (Swanston Trams) Pty Ltd as defendant. The application sought leave under s 444E (3) of the Corporations Act ("the Act") to commence a proceeding against the defendant being a company under a deed of company arrangement.  There was an urgency about the application as the relevant limitation period was to expire at the end of the last day of September.  On 19 September I granted leave to the plaintiff to commence a proceeding against the defendant to bring the claim referred to in a proposed statement of claim exhibited to an affidavit sworn by the plaintiff.  I further ordered that following the commencement of the proceeding the plaintiff take no step in it until further order, and adjourned the hearing of the application. 

1. The proposed statement of claim was in form a claim to be filed in the County Court against the defendant and an employee of the defendant.  It alleged that on 17 May 2002 in the afternoon, the plaintiff, after disembarking from a tram in Melbourne, had been subjected to an assault, battery and false imprisonment by employees of the defendant.

1. The proposed statement of claim itemised a series of injuries, claimed damages, and exemplary damages on the allegation that the subject conduct of the employees of the defendant constituted what was described as a contumelious disregard of the plaintiff’s rights.

1. The originating process in proceeding 7929 of 2003 was filed on 26 September by Alan Stone as plaintiff against National Express Group Australia (Bayside Trains) Pty Ltd as defendant, which was also under a deed of company arrangement.  The application sought leave to commence a proceeding against the defendant.  On 29 September 2003 I gave the plaintiff leave to commence a proceeding against the defendant to bring the claim referred to in a proposed statement of claim exhibited to an affidavit he had sworn.  I also ordered that until further order no step be taken in the proceeding and adjourned the hearing of the application.

1. The proposed claim is somewhat similar to that in proceeding 7658 of 2003.  It was filed in the County Court against the defendant and several employees of the defendant.  It alleged that on 1 June 2002 the plaintiff was unlawfully assaulted and battered and deprived of his liberty, by employees of the defendant, both on, but particularly after alighting from, a train.  Exemplary damages are sought in addition to damages for personal injury.

1. Now, in each case I have heard today an application on behalf of each plaintiff for leave to continue their respective proceedings in the County Court.  I am told, although it has not been placed in evidence before me, that each has filed a writ in the County Court which, I infer, incorporates a statement of claim in the terms that were produced to me on the initial application for leave.

1. I should add that on this application no further affidavit has been filed by or on behalf of either plaintiff.  What has happened insofar as evidence is concerned is that one of the deed administrators has sworn an extensive affidavit in which he deposes as to events leading up to a resolution by creditors at the second meeting of creditors, that a deed of company arrangement be entered into, the entry into the deed, a reference to the provisions of it, a reference to the solvent status of the administration, and a proposal as to how to deal with the plaintiff's claim.  Each defendant company, and two other companies, are subject to the deed of company arrangement.  That is, the four companies, which operate certain public transport franchises in Victoria, are subject to the same deed of company arrangement.

1. The parties to the deed were National Express Group Plc (the parent of the four companies), the Director of Public Transport, the receivers and managers of the four companies and the deed administrators.

1. The deed itself is not in the usual form, it has particular provisions, and it is those provisions that particularly concern the extinguishment or the release of claims that the deed administrator relies on in the first instance to say that the applications by these plaintiffs are incompetent in effect.

1. The second and alternative point that is taken by the deed administrator is that even if that primary position was incorrect, for a number of reasons of a discretionary nature, the application should be refused in each case.

1. The first point may be identified fairly readily.  It turns on the definition of available property.  In a sense it is a question of where you start in explaining what the point is, but what is provided in the deed is that within 14 days of the commencement date, the Director of Public Transport, and National Express Group Plc, must pay the contributions respectively identified to be paid by them to the deed administrators.  Those contributions were respectively $20m and $10m.  And those contributions together constitute what is called in the deed, the available property.

1. Clause 8.2 provides that the administrators will hold the available property on trust for the benefit of each person with a priority claim, and for the admitted creditors in respect of their entitlements and for the subordinated creditors in respect of their entitlements, on the terms and subject to the conditions contained in the deed.

1. A creditor is defined in the deed to mean any person who has a claim against what is called a franchisee company. "Franchisee companies" are defined to mean the four companies (including the defendants) subject to the deed.

1. A claim is defined to mean a debt payable by, or claim against, a franchisee company (whether based in contract, tort, statute or otherwise, present or future, certain or contingent, ascertained or sounding only in damages), being a debt or a claim arising on or before the appointment date, but does not include a claim for employee entitlements.

1. It follows that the definition of claim and creditor is wide enough to include a claim of the nature the subject of the proceedings commenced in the County Court by these plaintiffs.

1. It is provided in clause 3.1, that the deed binds, in accordance with s.444D of the Act, the "franchisee creditors", who are defined to mean creditors and employees.

1. Then, critically, clause 9 of the deed provides as follows.  In clause 9.1, subject to clauses 9.4 and 9.5, the franchisee companies will be released and discharged from all claims against them upon receipt by the administrators of the available property pursuant to clause 8.1.

1. Clause 9.2 provides that any creditor called upon to do so must execute a "release of debts and claims" as the company or the administrators may require to give effect to the release in clause 9.1. Clause 9.3 provides a bar to claims. It states that "Subject to s.444D of the Act, this deed may be pleaded by franchisee company or the administrators against any person … having a claim against that company as an absolute bar and defence to any legal proceedings brought or made at any time in respect of that claim".

1. Clause 9.4 states that the parties acknowledge and agree that once the claims against the franchisee companies are released pursuant to clause 9.1, the creditors who had claims will be entitled to make equivalent claims against the available property and prove for those claims in accordance with clause 14.

1. Clause 14 provides for the making of claims by creditors.  It is unnecessary to refer to its provisions.  They incorporate to an extent the provisions that are applicable to companies in winding up.  In the ordinary case that would mean that the deed administrators would decide whether to accept or reject, wholly or in part, claims of creditors.  The deed administrator has deposed to there being 40 or so people with personal injury type claims which, if pressed, will have to be dealt with under the deed.  For such claims, including the plaintiffs, a regime has been established for the investigation of the claims.  This will be done by experienced lawyers in the firm of solicitors acting for the deed administrators who will advise the deed administrators who will make their independent decision on the claim.  From their decision a claimant can appeal to the Court.

1. The debate that has been had before me has not concerned clause 14 in the sense of its particular terms.  The debate as to the making of claims rather concerned other matters.

1. The primary point that Mr Whelan QC relies upon is one that is drawn from clause 9 in the context of all of the other definitions of the deed, in providing for a release of all claims.

1. The effect of clause 9 was conceded by Mr Catlin to be that existing claims, being those existing at the time when the available property was received by the deed administrators, were extinguished.

1. The language of clause 9 indicates that on that occurring, the claim that one has is not the original claim against a franchisee company, but an equivalent claim against the available property.  An equivalent claim is a claim that existed on or before the appointment date.

1. And therein lies the sting in the deed administrators' point.  What the respective plaintiffs have filed is a proceeding in the County Court against two named corporate entities, but a claim against those entities has, by the deed, been released upon the receipt by the deed administrators of the available property.

1. It would follow, as Mr Whelan QC foreshadowed, that if the claim against either company were to proceed it would be met by a plea in bar by way of defence in those proceedings and no amount of leave that I might give on this application could take away the efficacy of that plea because it is based on the express provision in the deed of company arrangement.  Indeed, under clause 9.2 the plaintiff could be called upon to execute a release of the claim against the company.

1. It is for that reason that it is said by the deed administrators that for leave to be given to continue with the proceedings the court would have to somehow vary the operation of the deed so as to except the subject proceedings from its operation.  It is a nice question as to how the exception would be expressed, or indeed could properly be achieved, having regard to the fundamental provisions of the deed.  Neither originating process sought a variation to the terms or operation of the deed.

1. Were the position under the deed not as I have stated, it would be necessary to consider whether as a matter of discretion, in all the circumstances, it would be appropriate to give leave to continue with the proceedings.  Nevertheless, I now consider the submissions put to me on the matter of discretion.

1. I have been referred to a number of authorities by counsel who have both provided submissions in a helpful and constructive way.  I do not find it necessary to refer to the authorities extensively.  I note that in the decision of the Full Court of the Supreme Court of Queensland in Ogilvie-Grant v. East[1], their Honours in a joint judgment said, in referring to the provision of the companies legislation that enabled leave to be given to commence or continue a proceeding, that the effect of the provision:

"[I]s to require the claimant to adopt the course of lodging proof of debt unless he can demonstrate that there is some good reason why a departure from that procedure is justified in the case of particular claim in dispute."

[1](1983) 1 ACLC 742, at 744.

1. What we have here is an administration in respect of which the available property is somewhat less than half of the anticipated debts.  In the course of his submission Mr Whelan QC referred to a possible rate of distribution to creditors in the order of 40 percent or so.  It is difficult, of course, to be precise at this stage and I do not take Mr Whelan QC as having intended to be, but the significant fact is that the administration is plainly one in which there will be nothing like a return to creditors of 100 cents in the dollar.

1. In the course of his submission Mr Catlin identified several matters which he said were relevant factors to the exercise of the discretion.  Each such factor was among those that have been identified in a series of cases as being relevant to the exercise of the discretion.  As to those cases, I was referred to Re Gordon Grant and Grant Pty Ltd[2], and to a decision of Justice Lehane in Meehan v. Stockmans Australian Café (Holdings) Pty Ltd[3] in which his Honour concluded that the principles applicable in this area in winding up applied also to the position under a deed of company arrangement.  See also Glaister v. Banwell Pty Ltd.[4]

   [2](1982) 1 ACLC 196.

   [3](1996) 22 ACSR 123.

   [4]Supreme Court of Western Australia, 27 May 2003, BC 200302632.

1. Mr Catlin first said, well, there should be a serious question to be tried and undoubtedly there is in this case, that is not put in issue.  He then said that one considers the relative prejudice to creditors as against the plaintiff.  As to that, the position is that there is now, and will be, an insufficiency of funds to pay creditors in full.

1. That leads one to the next relevant factor which relates to the existence of insurance.  It is well established, and it is a commonplace, certainly in liquidation cases, that if there is insurance, leave will be given because there will be no or no appreciable diminution of the funds otherwise available to creditors.

1. In this case there is insurance, but the insurance is subject in respect of each and every claim to an excess of $100,000.  Furthermore, the insurance policy excludes cover for exemplary damages.  I mention exemplary damages because each plaintiff is seeking exemplary damages.  It follows that to the extent that the claim of each plaintiff is likely to be for an amount in total under $100,000 and includes exemplary damages, that anything that is recovered is to that extent something that comes out of the pool otherwise available for all creditors.  The benefit of insurance will only cut in if a plaintiff recovers more than $100,000, excluding exemplary damages.

1. In the course of argument I mentioned to Mr Catlin that I have no evidence that would enable me to hazard a view as to the likely amount to be recovered by either plaintiff.  All that I have is the original affidavit of each plaintiff which exhibited a draft statement of claim, but I do not have any witness statement, medical report or other information as to out of pocket expenses which would otherwise shed light on any likely award.  I gathered from the way Mr Catlin referred to the two cases as pleaded in the particulars in the draft statements of claim, that each case appeared as not likely to be worth more than $100,000.  In that case the factor of insurance which commonly induces a court to give leave to continue or commence a proceeding is not present.

1. The next factor mentioned is that these cases are of the type that are ordinarily tried by a judge (with or without a jury) and that is correct, but so I suppose are all disputed questions ultimately tried by a judge unless some other form of resolution is achievable.  The final point that Mr Catlin mentioned is that I should add a condition that any judgment could not be enforced without further leave.  If leave were granted, that condition would be applied.

1. The deed administrator went to considerable lengths in his affidavit to establish the likely costs of the cases if they proceed through the litigation process, as against being dealt with under the deed.  The affidavit argued that the latter course would be cheaper and quicker, even if there was an appeal to the Court from the decision of the deed administrators on a claim.  It was said that the cases would not be expected to be heard in the County Court until 2005. 

1. In a sense I think there is a danger of trying to be too scientific and arithmetical about costs which depend on the course of future events.  It is not unusual for lawyers to underestimate costs.  It is not unusual for lawyers to get lost with tendention and argumentation which aggravates costs.  At the same time cases can be conducted with less cost and time than initially thought.  I think it is very hard for me to accept all that the deed administrator deposes to in his affidavit.  It is all too theoretical and simplistic, I think, even though it is very detailed. 

1. The basic point that is made is that there is a deed of company arrangement, that the claim should be made in accordance with its provisions, and if the claimants do not like the result that the administrator comes to, they have a right of appeal to the Court.

1. In effect, as I said to Mr Catlin in the course of argument, the process of lodging a claim under the deed with the administrator gives the plaintiff an extra leg, because if that process is followed, as in my view it must be if the claim is to be pressed, there may be satisfactory resolution, but if there is not, each of these claimants has an absolute right of appeal to a judge of this court, and if they do not like what the judge does, they can go to the Court of Appeal.

1. When and if a case did come on appeal from a decision of the deed administrators, the case would be dealt with in the manner, and in accordance with such directions and procedures as are appropriate for the proper disposition of the case in accordance with the interests of justice.

1. I am not affected in the view that I take of the matter by anything that counsel have said either way as to a likely avalanche of cases if I was to accede to the respective applications.  I think that one just deals with cases as they come along and the deed administrators can do the same thing.

1. However, in my view, the correct position is that for the reasons I have mentioned, firstly, that there is a bar to these claims in the form of clause 9 of the deed operating in accordance with the other terms of the deed.  For that reason, and because for a grant of leave to be effective there would need to be a change to the deed, and there is no application for that, and if such an application were made, it would require its own analysis, the applications must fail.  Secondly, I would in any event have refused the applications for discretionary reasons.  In each case the application will be refused.

1. It would seem to me appropriate to order in each case that, as has been agreed in the other case of McKenna, that subject to further order, there be a stay on any further step being taken in the proceeding.