Daydream Island International Resort Pty Ltd v Cushway Blackford & Associates Pty Ltd [1994] QSC 298 [1995] 2 Qd R 128

IN THE SUPREME COURT OF QUEENSLAND No. 1175 of 1994 Brisbane Before Mr Justice Shepherdson [Daydream Island Resort v. Cushway Blackford & Assoc. & Ors] BETWEEN DAYDREAM ISLAND INTERNATIONAL RESORT PTY LTD (formerly DAYDREAM ISLAND RESORT (KENNEDY'S)) PTY LTD (ACN 009 919 457) Plaintiff and CUSHWAY BLACKFORD & ASSOCIATES PTY LTD (formerly R CUSHWAY & ASSOCIATES (AUST) PTY LTD) (ACN 010 522 988) First Defendant and ROBERT CUSHWAY Second Defendant and PARKINSON AIR CONDITIONING PTY LTD (ACN 010 236 718) First Third Party and AMPAR PTY LTD (ACN 009 104 367) trading as INTER 5 Second Third Party and -- 1 of 13 -- JENNINGS CONSTRUCTION LIMITED (ACN 004 130 330) Third Third Party and JENNINGS CONSTRUCTION LIMITED (ACN 004 283 523) trading as JENNINGS CONSTRUCTION SERVICE Fourth Third Party and TREVOR BUTLER Fifth Third Party JUDGMENT - SHEPHERDSON J. Judgment delivered 17 November 1994 CATCHWORDS: CORPORATIONS; application by First Third Party to strike out Third Party Notice; applicant subject to Deed of Company Arrangement; Defendants claim under ss. 5 and 6 Law Reform Joint Tortfeasors Act; whether date of arrangement binds the two defendants, whether leave required under s.444E(3) Corporations Law; s.444E(1) Corporations Law considered Brash Holdings v. Katile Pty Ltd & Anor (1994) 13 ACSR 504; 12 ACLC 472 considered. COUNSEL: McKenna for applicant First Third Party Doyle for respondent defendants SOLICITORS: Feez Ruthning for applicant Clayton Utz for respondent HEARING DATE: 8.11.94 -- 2 of 13 -- IN THE SUPREME COURT OF QUEENSLAND No. 1175 of 1993 BETWEEN DAYDREAM ISLAND INTERNATIONAL RESORT PTY LTD (formerly DAYDREAM ISLAND RESORT (KENNEDY'S)) PTY LTD (ACN 009 919 457) Plaintiff and CUSHWAY BLACKFORD & ASSOCIATES PTY LTD (formerly R CUSHWAY & ASSOCIATES (AUST) PTY LTD) (ACN 010 522 988) First Defendant and ROBERT CUSHWAY Second Defendant and PARKINSON AIR CONDITIONING PTY LTD (ACN 010 236 718) First Third Party and AMPAR PTY LTD (ACN 009 104 367) trading as INTER 5 Second Third Party and JENNINGS CONSTRUCTION LIMITED (ACN 004 130 330) Third Third Party and JENNINGS CONSTRUCTION LIMITED (ACN 004 283 523) trading as JENNINGS CONSTRUCTION SERVICE Fourth Third Party and TREVOR BUTLER Fifth Third Party JUDGMENT - SHEPHERDSON J. Judgment Delivered 17 November 1994 The abovenamed first third party has sought, first, an order that the Third Party Notice claiming indemnity or contribution against it be struck out. Alternatively, it seeks an order that the action against it be stayed until further order. -- 3 of 13 -- 2 The relevant uncontested historical facts leading to the issue of the Third Party Notice against the first third party are:- 1. On 3 August 1993, the plaintiff sued the abovenamed defendants for damages for (inter alia) negligence and also sued the first defendant for breach of contract. The plaintiff's claim arose out of work done in reconstructing Daydream Island tourist resort in the Whitsunday Islands; 2. The defendants have defended the action. There is no admission of liability; 3. On 10 June 1994, the Honourable Mr Justice Mackenzie gave leave for the first and second defendants to issue Third Party Notices against each of the abovenamed third parties. That leave was given pursuant to Order 17 of the Rules of the Supreme Court; 4. The Third Party Notice against the applicant first third party shows that the defendants have claimed against the first third party to be indemnified against the plaintiff's claim and costs of the action or alternatively, contribution towards the plaintiff's claim to such extent as the court may consider just; 5. The basis of these claims, as appearing from the Statement of Claim of the defendants against all third parties is that the first third party carried on the business of designer, supplier and installer of air conditioning systems and was negligent in carrying out the air conditioning works in the reconstruction of the resort; 6. By a deed dated 5 November 1993, the first third party (administrator appointed) and another company entered into a deed of company arrangement. This deed of -- 4 of 13 -- 3 arrangement is current and the Administrators are Mark Trevor Manteit and Richard John Dennis jointly and severally. The bases of the application to strike out the Third Party Notice are:- 1. That the deed of arrangement binds the two defendants; and 2. That pursuant to s.444E(3) of the Corporations Law leave of this Court was and is required for the issue of the Third Party Notice against the first third party. Section 444E(3) relevantly reads:- "The person cannot:- (a) begin or proceed with a proceeding against the company or in relation to any of its property except; ....... except (c) with the leave of the Court, .........." "The person" in that subsection means "a person bound by the deed". (s.444E(1)). This then takes me to the first basis on which Mr McKenna, Counsel for the applicant relies. Section 444D(1) of the Corporations Law provides:- "444D(1). A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i)." The day specified in the deed is, in the present case 13 September 1993 and there is no issue about that date. Mr Doyle, Counsel for the respondent defendants has made two basic submissions and these are:- 1. The disqualifying effect of the Corporations Law only applies if the first and second -- 5 of 13 -- 4 defendants are bound by the terms of the deed of arrangement and they are not; 2. The defendant's claims against the first third party for indemnity or contribution are not claims which arose on or before 13 September 1993. "Until a deed of company arrangement terminates this section applies to a person bound by the deed" (s.444E(1)). In the deed now before me the provisions as to termination appear in Part 10 and the deed has not yet terminated. Section 444D is headed "EFFECT OF DEED ON CREDITORS" and I have already set out the words of subsection 444D(1). Mr Doyle correctly points out that the language used in subsections 444D(1) and 444E differs. In the former subsection, all creditors of the company are bound "so far as concerns claims arising on or before the day specified in the deed". This subsection operates irrespective of whether the creditor voted in favour of the deed. In the latter subsection the reference is "to a person bound by the deed". Is the difference in language significant? Does the phrase "a person bound by the deed" appearing in subsection 444E(1) mean all creditors bound by the deed so far as concerns claims arising before the day specified? At the end of the day, any difference, if it exists, does not affect the outcome of this case. My reasons for this view will appear. Mr McKenna's argument is that the difference in language between subsections 444D(1) and 444E(1) is not significant. He has submitted that s.444D(1) in effect sets the parameters for the persons bound by the deed. He has further submitted that the binding effect of subsection 444D(1) embraces all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages) being debts or claims the circumstances giving -- 6 of 13 -- 5 rise to which occurred before 13 September 1993. In making this latter submission he relies upon Brash Holdings Limited (administrator appointed) & Ors v. Katile Pty Ltd & Anor, a decision of the Supreme Court of Victoria - Appeal Division (1994) 13 ACSR 504; (1994) 12 ACLC 472. He relies also on the definition of "Claim" appearing in paragraph 15.1 of the deed. I shall mention this definition later. The facts in Brash as taken from the head note in 13 ACSR are as follows. The appellants were five companies in a group (the Brashs Group). On 2 May 1994, administrators were appointed under s.436A(1) over the appellants. The administrators convened a meeting of creditors on 9 May 1994 to consider the possibility of a deed of company arrangement under s.436E. The appellants were lessees of a considerable number of rented premises on which rent and outgoings totalled $40 million per annum. At some of these premises the business was being conducted at a loss. The administrators were concerned to know whether, under s.444D(1) of the Corporations Law, a deed of arrangement would bind creditors in respect of claims against the company which might arise after the date of the deed of arrangement pursuant to a contract or understanding entered into by the company prior to that date. At first instance the trial Judge held that s.444D(1) was binding only in respect of claims that had arisen on or before the date of the deed of arrangement. The argument before the Appeal Court addressed three principal questions concerning s.444D. The first was the meaning of the word "creditors" in subsection (1) the second was whether the word "claims" in that subsection included a lessors claim for rent which fell due only after the day specified in the deed mentioned. The third concerned what rights of a lessor were preserved under subsection (3). The respondents to the appeal were two of those who leased premises to the first named appellant. Before the Appeal Court the respondents submitted that subsection 444D(1) deserved a narrow construction so that "creditors" meant only those whose claims against the company were for debts presently due and payable. The appellants submitted that the words "creditors" should not be -- 7 of 13 -- 6 so confined but should be read as extending to all those who had a claim against the company arising on or before that day, whether the claim be "present or future, certain or contingent, ascertained or sounding only in damages" (as described in s.553(1) of the Corporations Law in relation to those debts or claims that are provable in a winding up. The Appeal Court considered the context in which s.444D occurred and at page 512 (13 ACSR), after considering the respondents' contention for a "narrow construction" said:- "But we see no reason why 'creditors' should be so limited. The purpose of s.444D(1) is to ensure that all creditors are bound so far as concerns the claims described; but the whole purpose of Part 5.3A is, we think, to bind all creditors. Some of them may have claims arising on or before the day specified in the deed and, in due course claims arising after that day; and the purpose of s.444D(1) is to ensure that they are bound only so far as concerns the former and not the latter." At page 513 the court said:- "In our opinion the reference to 'all creditors' in s.444D(1) must be read and understood in the context of all other references to 'creditors' in Part 5.3A. What has so far been described is sufficient to show that the general scheme of the part is to involve the company's creditors, without further limitation or description. The word 'creditors' should, in the absence of any good reason otherwise, be read as used in the same sense throughout Part 5.3A ..." (the underlining is mine) The Court then, after considering various sections in Part 5.3A said (at p.514):- "All we do for present purposes is to reject the respondents submission that in s.444D(1) the words 'all creditors' are limited to those who have claims for sums becoming due or payable on or before the day specified in the deed. The expression includes, in our opinion, all of the creditors for the time being of the company." This last quoted extract is, as Mr Doyle submitted the ratio of Brash. The result is that, so far as concerns the facts before the Appeal Court, the words "all creditors" in subsection 444D(1) included all the creditors for the time being of the company. As I read Brash, it recognises that while the word "creditors" should be read using the same sense throughout Part 5.3A, good reason otherwise may indicate a different result. I shall return later to this aspect because it is fundamental to Mr Doyle's first submission. The Appeal Court having answered the first question before it then went on to consider who -- 8 of 13 -- 7 were the creditors for the time being of the company. The Court considered an argument of the appellants that s.553 of the Corporations Law indicated the meaning of "creditors of the company" appearing in subsection 444D(1). Section 553 is headed "DEBTS OR CLAIMS THAT ARE PROVABLE IN WINDING UP." Subsection 553(1) reads:- "553(1). Subject to this Division, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company." The Court did not define the ambit of s.553 and at the conclusion of its reasons which were given in conditions of great urgency it said (p.517-8):- "For the reasons we have given, we consider that a deed of company arrangement, if entered into by any of the appellants, will, by virtue of s.444D(1) of the Corporations Law bind, so far as concerns all debts and claims hereinafter mentioned, all those persons who on the day specified in the deed had debts or claims that would have been provable in the winding up of the company under s.553 if the 'relevant date' mentioned had been the day specified in the deed." The Appeal Court imported s.553(1) into s.444D(1) and in so doing made it clear that creditors whose debts or claims were provable in the winding up on the date specified in the deed were bound by s.444D(1). The day specified in the deed is of critical importance. In the present case, that day was 13 September 1993. On that day, what was the nature of the defendants' claim against the first third party and was it within the ambit of "Claim" as defined in the deed? As to the second of these questions, the deed provided:- (a) Clause 3.1:- "This deed binds all persons having a Claim to the extent of such Claim". (b) Clause 15.1 defined "Claim" as follows:- "'Claim' means a debt owing (whether now, in the future or contingently) by, or a claim subsisting against, the Company in favour of a person as at 13 September 1993, irrespective of whether the debt or claim arose by virtue of contract, at law, in equity or otherwise and including (without -- 9 of 13 -- 8 limitation) a claim sounding only in damages, a debt or claim arising pursuant to any guarantee and a debt or claim of a Secured Creditor, Owner or Lessor." Mr Doyle has submitted that on the proper construction of "claim" the defendants claim against the first third party:- (a) is not a debt owing; and (b) was not a claim subsisting against the first third party as at 13 September 1993. Mr Doyle correctly points out that the defendants do not claim a debt due by the first third party. The defendants claim against the first third party is made under s.5(c) of The Law Reform (Tortfeasors Contribution, Contributory Negligence and Division of Chattels) Act 1952. The right to the indemnity appears in s.6 of that Act. The claim is made by two alleged tortfeasors against another alleged tortfeasor for indemnity or contribution from the latter in respect of the plaintiffs' claim in negligence against them. The defendants' claim for contribution and indemnity is a cause of action apart from and independent of the cause of action which the plaintiff had or would have had against the first third party had it sued it. (Brambles Constructions Pty Limited v. Helmers (1966) 114 CLR at 213 per Barwick CJ at p.218). As Barwick CJ said in the same case (at p.219):- "The effect of s.5(1)(c), in my opinion, is that a tortfeasor who has come under an enforceable obligation to pay money for the damage caused by his tortious act may successfully recover contribution from another tortfeasor who has also come under an obligation to pay money in respect of the same damage and he may also recover contribution from any other tortfeasor who, not having been sued by the injured party, had he been sued, would have been found to have caused or contributed to the same damage by a tortious act." The reference to s.5(1)(c) is to the New South Wales equivalent of s.5(c) of the Queensland Act. There is no temporal element in s.5(c). Consequently, until the defendants are found liable in negligence in the plaintiff's action, the claim for contribution or indemnity does not arise. In the -- 10 of 13 -- 9 present pleadings that claim will not arise (if it does) for some time. The amount of such claim is not ascertainable until assessed by a court. Mr Doyle submits that on a proper construction of "Claim" in cl.15.1, the defendants' claim was not a claim subsisting against the first third party in favour of the defendants as at 13 September 1993. He relies on "subsisting" meaning "existing or continuing to exist" (Macquarie Dictionary). I would also add the definition of "subsist" in Shorter Oxford English Dictionary:- "To have an existence as a reality; to exist as a substance or entity." I propose to adopt these definitions in construing "subsisting" in the definition of "claim" in the deed. In my view, it cannot be said, in the light of the decision in the Brambles Constructions Case that, as at 13 September 1993 the defendants' claim against the first third party subsisted as a claim. It cannot subsist as a claim until the defendants are found liable in judgment to the plaintiff for their alleged negligence or they admit liability for such. It is only when either of those events occurs that the claim for indemnity or contribution arises for consideration. I should add that in the definition of "Claim" in cl.15.1 the words in parenthesis apply only to debt. They do not apply to "a claim subsisting". If the words in parenthesis had appeared after the words "claim subsisting against" my attitude may well have been different. In my view, the decision in Brash does not assist Mr McKenna in the circumstances of the case before me. The decision in Brash recognised that there may be good reason to construe the reference to "all creditors" in s.444D(1) as other than in the context of all other references to "creditors" in part 5.3A. Mr Doyle relies on this recognition. In my respectful view, good reason exists in this case. The first is the drafting and construction of "Claim" in cl.15.1. On Mr McKenna's argument the construction placed on s.553 in Brash, if applied to the present case would oblige me to construe "Claim" as including contingent claims i.e. claims for unknown amounts of money which arise after 13 September 1993. -- 11 of 13 -- 10 As I have already pointed out, the deed does not purport to deal with such contingent claims although it does purport to deal with contingent debts. Mr Doyle has submitted that if Mr McKenna's argument is correct then the defendants are bound by the deed and will be prevented from litigating a claim against the first third party such claim being one which the administrators of the deed cannot, on the proper construction of the deed, deal with under the deed. Brash did not deal with an existing deed and although the case is helpful in certain respects, I do not find anything in it which obliges me, in the circumstances of this particular case, to rely on it and uphold Mr McKenna's claim. In one sense the Appeal Court was giving a judgment on hypothetical facts having no actual deed before it. In my respectful view, subsection 444D(1), on its proper construction, requires a contingent claim to arise before 13 September 1993 and that has not happened in the present case. The terms of the deed effectively prevent Mr McKenna succeeding. In saying this I recognise that the circumstances giving rise to the plaintiff's claim against the defendants and to the defendants claims against the first third party occurred before 13 September 1993. The latter claims are contingent only and as I have explained, are not covered by the deed in the present case. -- 12 of 13 -- 11 At the end of the day, I find the first and second defendants are not bound by the terms of the deed of arrangement and that their claims against the first third party for indemnity or contribution are not claims which arose on or before 13 September 1993. In my view s.444E does not apply in the present case and I dismiss the first third party's application to strike out the third party notice claiming indemnity or contribution and also its application that the action against it be stayed until further order. I shall hear from the parties on costs. For sake of completeness I would add that when the defendants obtained the order from Mackenzie J. on 10 June 1994, His Honour's attention was not drawn to s.444E and this was done quite deliberately because it appears the defendants' legal advisors believed it did not apply. -- 13 of 13 --