Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation)

1. [1]

   SACKVILLE AJA: By notice of motion filed on 29 May 2018 the appellant (as I shall refer to it) seeks leave, nunc pro tunc, to commence an appeal against the first respondent (Ostwald), a company in liquidation. The leave is sought pursuant to s 500(2) of the Corporations Act 2001 (Cth) (Corporations Act) which provides as follows:

2. [2]

   The appellant, as contractor, and Ostwald, as sub-contractor, entered into a contract to perform works on the Pacific Highway near Grafton. On 28 July 2017 Ostwald served on the appellant a payment claim pursuant to s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act), claiming the sum of $6,351,066.08. The appellant did not pay any part of the amount claimed.

3. [3]

   On 27 September 2017, Ostwald made an adjudication application under s 17(1)(a)(ii) of the Act. On 6 November 2017, the Adjudicator issued an adjudication determination pursuant to s 22 of the Act which determined that the amount due by the appellant to Ostwald was $5,074,218.27.

4. [4]

   On 17 November 2017, the appellant instituted proceedings in the Technology and Construction List of the Equity Division seeking, among other relief, a declaration that the Adjudicator’s determination was void. One ground on which the appellant relied was that Ostwald’s adjudication application was made out of time.

5. [5]

   On 30 November 2017 Ostwald’s creditors resolved that it should be wound up under s 439C(c) of the Corporations Act. The winding up is taken to have commenced on 25 August 2017, the date the directors of Ostwald had resolved to appoint administrators. [1]

6. [6]

   On 8 March 2018, the Supreme Court granted leave to the appellant to proceed against Ostwald.

7. [7]

   The hearing took place before Stevenson J on 8 and 13 March 2018 and judgment was delivered on 5 April 2018. His Honour rejected the appellant’s argument that the adjudication application had been made out of time. [2] His Honour also rejected the appellant’s argument that a company in liquidation could not rely on the provisions of Part 3 of the Act. The primary Judge declined to follow a decision of the Victorian Court of Appeal [3] which held that a company in liquidation could not avail itself of similar legislation. In his Honour’s view the Victorian decision was “plainly wrong”. [4]

8. [8]

   However, his Honour held that as Ostwald had gone into liquidation following the making of the adjudication determination and before it moved for judgment, s 553C of the Corporations Act governed what was to happen next. [5] His Honour considered that he had:

9. [9]

   Formal orders were made by the primary Judge on 2 May 2018. They included the following:

10. [10]

    On 18 May 2018 judgment was entered in favour of Ostwald against the appellant in the sum of $5,351,218.83.

11. [11]

    The appellant seeks leave in order to institute its appeal against the decision of the primary Judge. The draft notice of appeal challenges the primary Judge’s finding that the adjudication determination was valid. The orders sought by the appellant include an order in the nature of certiorari quashing the determination and an injunction restraining Ostwald from enforcing the determination.

12. [12]

    Mr Hume, who appeared for the appellant, submitted that, despite the appellant having filed a motion seeking leave to commence the appeal, the better view is that it does not require leave. Mr Hume contended that although there were conflicting observations in the authorities, this Court would follow dicta of the Victorian Court of Appeal in Mernda Developments Pty Ltd (in liq) v Alamanda Property Investments No 2 Pty Ltd. [7] In that case the Court expressed the view that where an appellant had already been granted leave to commence the proceedings at first instance against a company in liquidation no further leave is required to institute an appeal against the decision.

13. [13]

    If, contrary to his argument leave is required, Mr Hume submitted that leave should be granted for three main reasons. First, he pointed out that it is common ground that the grounds for the appeal are fairly arguable. Secondly, an appeal is the only efficacious remedy in respect of Stevenson J’s finding that the adjudication determination was valid. Since the liquidators will be faced with a final and conclusive judgment of the Equity Division, it is inevitable that the liquidators will deal with any proof of debt lodged by the appellant on the basis that it owes Ostwald over $5 million. Thirdly, it would be inefficient for the liquidators to process the appellant’s proof of debt on the assumption that the adjudication determination was valid, only for this Court to decide at a later stage that the primary Judge was in error in so holding. This would require the liquidators to reconsider the proof of debt thereby potentially affecting all creditors.

14. [14]

    Mr Robertson, who appeared for Ostwald submitted that the liquidators should rule on the proof of debt lodged by the appellant before the appeal proceeded. He relied on an affidavit from Ostwald’s solicitor which attached the appellant’s proof of debt and recorded the liquidators’ advice that they expected to be able to make a decision within four to six weeks.

15. [15]

    Mr Robertson invited the Court to stand over the motion seeking leave to proceed until after the liquidators ruled on the proof of debt. As I understood his position, he appeared to accept that if the liquidators processed the appellant’s proof of debt on the basis that the adjudication determination was valid, it would then be appropriate for the Court to grant leave to the appellant to institute the appeal. In response to questions, Mr Robertson accepted that essentially Ostwald’s opposition to the leave application was founded on a desire to minimise costs in the proceedings.

Reasoning

1. [16]

   Black J recently helpfully summarised the authorities explaining the approach that should be taken to an application for leave under s 500(2) of the Corporations Act: [8]

2. [17]

   Black J also cited the observations of Foster J in a Federal Court case as follows: [9]

3. [18]

   These observations were made in cases where an application was made to institute proceedings at first instance. In Mayo v W & K Holdings (NSW) Pty Ltd, [10] Barrett JA noted that an application under s 471B of the Corporations Act (which applies where a company is being wound up in insolvency) for leave to institute an appeal:

4. [19]

   In the present case, the proposed appeal is not only supported by reasonably arguable grounds but they raise significant issues, including the correctness of considered dicta of the Victorian Court of Appeal.

5. [20]

   The appellant has lodged a proof of debt which, as the primary Judge recognised will require the liquidators to take an account of dealings between Ostwald and the appellant to determine what is due from one party to the other. Since judgment has been entered in favour of Ostwald against the appellant for the amount of the adjudication determination it would seem inevitable that the liquidators will take the account between the parties on the basis that the appellant owes that amount to Ostwald. The only practicable means of the appellant challenging the judgment debt is to allow its appeal to proceed.

6. [21]

   In any event, the evidence suggests that the liquidators’ determination will be made before an appeal will be heard and before the parties are required to file written submissions. In the highly unlikely event of the liquidators taking the accounts on the basis that the appellant does not owe Ostwald the amount of the judgment debt, there will be presumably no necessity for the appeal to proceed.

7. [22]

   As I have explained, it seems inevitable that the parties will have to prepare an appeal and incur the costs of doing so. It is open to them, if they agree, to defer preparation for a few weeks to allow the liquidators the opportunity to take the accounts. But I see no virtue in simply adjourning the appellant’s application and thus requiring the parties to incur further costs unnecessarily when the issue is revisited.

8. [23]

   I have approached the application on the basis that the appellant requires leave to institute the appeal. I think it is better that the question of whether leave is required be decided in a case where it is necessary to do so and the Court has the advantage of full argument on the point.

Order

1. [24]

   The following order should be made: