FEDERAL COURT OF AUSTRALIA

Hastie Group Limited (in liq) v Multiplex Constructions Pty Ltd (Formerly Brookfield Multiplex Constructions Pty Ltd) (No 2) [2021] FCA 1344

ORDERS

THE COURT ORDERS THAT:

Leave to proceed

1.    For the purposes of sub-paragraphs 12(g) and 12(v) of the orders made by the Honourable Justice Middleton on 1 October 2021, the Sixth, Eleventh, and Fourteenth Applicants have leave, pursuant to section 444E(3) of the Corporations Act 2001 (Cth), to proceed against the Twelfth and Thirteenth Respondents in respect of the issues in the list of issues annexed to these orders.

Other Orders

2.    Liberty to apply.

3.    Costs reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Annexure: list of issues as between the Sixth, Eleventh, and Fourteenth Applicants and the Twelfth and Thirteenth Respondents

A.     List of issues

1    The subcontract (and terms relevant to the provision of bank guarantees) between A6 and R12 [43], [44], A6 and R13 [134], [135], [192], [193], A11 and R12 [1], [2], A11 and R13 [163]-[164], A14 and R12 [85], [86].

2    Whether upon its proper construction the subcontract provided that any draw down of funds on the bank guarantees issued at the request of the applicants, did not confer on R12 or R13 any proprietary interest in the monies drawn down, nor any immediate entitlement to treat the monies drawn down as “Grocon’s own” – A6 [45], [136], [194]; A11 [3], [165]; A14 [87].

3    Payment by the Hastie companies of the fees charged by the banks upon issue and continuing provision of the bank guarantees and assumption by each of the Hastie companies at issue, of liability to repay the face value of the bank guarantee plus interest if drawn – A6 [47]-[49], [52], [138]-[140], [143], [198]; A11 [5], [10], [167]-[169], [172]; A14 [5], [91].

4    Whether each of the bank guarantees amounted to financial accommodation purchased by each Hastie company from the issuing bank, and was a chose in action as between the Hastie company and the bank (i.e. property of that Hastie company within the meaning of s 9 of the Act)? – A6 [54], [145], [200]; A11 [12], [174]; A14 [93].

5    Whether, in drawing down on the bank guarantees through the banking system there has been a debit in the amount of the face value of the bank guarantee to the relevant loan facility extended to the Hastie company by the issuing bank, and a credit to the bank account into which the drawn down funds were received on behalf of R12 and R13, which debit and credit are causally and transactionally linked – A6 [63], [64], [150], [151], [205], [206]; A11 [21], [22], [179], [180]; A14 [102], [103].

6    Whether each of the bank guarantees and the money drawn down thereunder was “property” of each of those Applicants within the meaning ascribed to that term under s 9 of the Corporations Act 2001 (Cth).

7    Whether, in drawing down the bank guarantees, R12 engaged in a transaction or dealing within s 437D of the Corporations Act affecting the property of A6 [67]; A11 [25]; and A14 [106] .

8    If issue 6 is determined in favour of the Liquidators, was each draw down void pursuant to s 437D of the Corporations Act 2001 (Cth)? A6 [68]; A11 [26]; A14 [107].

9    Whether R12 and R13 were secured creditors of the relevant applicants in respect of the amounts drawn down under the bank guarantees: A6 [59], [148], [203]; A11 [17], [177]; A14 [98].

10    Whether any monies drawn down by R12 and R13 on the bank guarantees provided to them by A6, A11 and A14 are, by reason of ss 553, 555, 556 and 560 of the Act, and by reason of the fact that those monies were drawn after 28 May 2012, available for the benefit of all unsecured creditors of A6, A11 and A14? – A6 [51], [77], [78], [142], [159], [160], [197]; [214], [215]; A11 [9], [35], [36], [171], [188], [189]; A14 [90], [116], [117].

11    Did the Liquidators bring an action to recover the proceeds drawn on the bank guarantees by filing this proceeding on 23 November 2017?

12    Whether the bank guarantee claims made in Part E and F of the FACS against the Grocon Respondents cannot be brought, or are not maintainable, by operation of statutory limitations or equitable principles.

B.     Carve out

13    For the avoidance of doubt, the grant of leave does not include:

(a)    the question of what amounts are or were owed by R12 and R13 to the Hastie companies, and vice versa, at the time of, and consequent upon, the drawing down of the bank guarantees; or

(b)    the amount for which R12 and R13 and the Hastie companies may prove in the other’s insolvency administration.

REASONS FOR JUDGMENT

MIDDLETON J:

INTRODUCTION

1    On 1 October 2021 and on 27 October 2021 I made interlocutory orders in these proceedings. These are the reasons for the orders made on 27 October 2021. The background to these proceedings is set out in Hastie Group Limited (in liq) v Multiplex Constructions Pty Ltd (Formerly Brookfield Multiplex Constructions Pty Ltd) [2020] FCA 1824 (‘Hastie 1’). I will assume a familiarity with the background to these proceedings as set out in Hastie 1.

2    Craig David Crosbie (in his capacity as joint and several liquidator of the Hastie Group companies) and David Laurence McEvoy (in his capacity as joint and several liquidator of certain Hastie Group companies) (the ‘Liquidators’), ACN 121 276 168 Pty Ltd (in liquidation) (formerly Heyday Group Lty Ltd) (‘Heyday’), Hastie Australia Pty Ltd (in liquidation) (‘Hastie Australia’), and Nisbet & Durney Pty Ltd (in liquidation) (‘Nisbet & Durney’) (collectively called the ‘Applicants’ unless the context otherwise requires) seek leave to proceed under s 444E(3) of the Corporations Act 2001 (Cth) (the ‘Act’) against Grocon Constructors (NSW) Pty Ltd, under administration since 22 February 2021, and Grocon Constructors Pty Ltd, under administration since 31 December 2020 (collectively called ‘the Grocon companies’ unless the context otherwise requires). The leave sought is limited to the Applicants’ recovery of some $3.66 million, being monies drawn down by each of the Grocon companies on bank guarantees provided by Heyday, Hastie Australia and Nisbet & Durney (the ‘Drawdown Monies’). No application for leave is made to pursue “unpaid receivables” totalling $11.5 million.

3    On 31 May 2021, the Grocon Group companies, including the Grocon companies, entered into a Deed of Company Arrangement (the ‘DOCA’). Clause 3.1 provides:

This Deed binds:

(a)    in accordance with its terms, the parties to this Deed who have executed this Deed; and

(b)    all other persons which, pursuant to the Act, are bound by the terms of this Deed, including, but not limited to:

(i)    the Creditors;

(ii)    the Officers of the Companies;

(iii)    any Secured Creditor, Owner or Lessor that voted in favour of the Section 439C Resolution; and

(iv)    any person so ordered by the Court under section 444F of the Act or otherwise.

4    “Creditor” is defined to mean a person who “has a Claim against one or more of the Companies”. The Grocon companies are “Companies” for the purposes of the DOCA.

5    “Claim” is defined in cl 1.1 to mean:

all debts payable by and all claims against, the Companies (arising at law, in equity or under any statute, present or future, certain or contingent, ascertained or sounding only in damages) the circumstances giving rise to which occurred on or before the Relevant Date, including all actions, claims, suits, causes of action, arbitrations, debts, costs, demands, verdicts and judgments.

6    The “Relevant Date” is defined in the Recitals as relevantly the dates when the Administrators (as defined under the DOCA, and now acting as ‘Deed Administrators’) were appointed administrators pursuant to s 436A(1) of the Act. Clause 5 of the DOCA provides for a moratorium in relation to, among other things, proceedings concerning the property of the Grocon companies. Clause 13.2 concerns adjudication of proofs of debt. Clause 15.4 provides that each creditor must accept its entitlements under the DOCA in complete discharge of any claims it has against the Grocon companies.

APPLICABLE PRINCIPLES FOR LEAVE UNDER S 444E(3)

7    There was no dispute between the Applicants and the Grocon companies about the basic principles to apply in seeking leave under s 444E(3) of the Act, although care must be made not to treat these principles as too prescriptive. Accepting that the approach to leave under s 444E(3) is akin to that under s 471B of the Act, the grant of leave under s 444E(3) will require the applicant to satisfy the Court that the discretionary factors applicable in any given case weigh in favour of the grant of leave: see, eg Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (subject to Deed of Company Arrangement) (2016) 116 ACSR 353; [2016] FCA 1246 at [96]-[128] and cases referred to therein.

8    Although the discretionary factors cannot be stated exhaustively and are not to be approached as a ‘shopping list’, some of the key factors have been identified in the case law (see, eg Attard v James Legal Pty Ltd (2010) 80 ACSR 585; [2010] NSWCA 311 at [146]), including:

(a)    the amount and seriousness of the claim;

(b)    the degree of complexity of the legal and factual issues involved;

(c)    the stage to which the proceedings, if already commenced, may have progressed;

(d)    whether it is likely that the deed administrators will reject the proof of debt lodged by the claimants so that, if they wished to press it, an appeal to the Court is inevitable;

(e)    whether the plaintiff would suffer disadvantage if leave is refused;

(f)    whether, if leave is granted, the deed administrators will be unreasonably distracted from performance of their statutory duties or obliged unnecessarily to incur substantial legal costs;

(g)    whether the plaintiff was involved in the administrators’ appointment;

(h)    whether the defendant is insured against the alleged liability that is the subject of the proceedings; and

(i)    whether, in the circumstances, there are good reasons for allowing the plaintiff to continue the proceedings even if the deed administrators do not provide consent.

9    In addition to the above factors, a further discretionary factor is whether there is a serious question to be tried, which requires the Court to be “affirmatively satisfied that the claim has a solid foundation and gives rise to a serious dispute”: see Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 556 per Wilcox, Burchett and Beazley JJ.

10    However, it is important to recall that the only limitations on the discretion of the Court in considering whether to grant leave under s 444E(3) of the Act are derived from the context, scope and purpose of Pt 5.3A of the Act. There should be no strict formula to constrain the exercise of that discretionary decision. For instance, whether there is a claim which has a “solid foundation” may be a factor to take into account, but is not a determinative factor.

11    To the extent that guidance is given in the authorities as to the exercise of the discretion, I should also point out that there is in any event an interrelationship between the existence of a claim having a “solid foundation” and a claim “giving rise to a serious dispute” on the one hand and the other factors that may be taken into account on the other, in determining whether to grant leave. The more the other factors weigh in favour of granting leave, the strength of the solidarity of foundation may be less important. Just as is the case with a consideration of whether to grant interlocutory injunctive relief and the two normal enquiries made then, (namely, whether there is a prima facie case and the question of the balance of convenience), the degree to which a claim has a “solid foundation” is not fixed; other factors that may in any particular case arise for consideration may compel the conclusion that leave should be granted where there is a serious dispute to be determined.

THE POSITION OF THE APPLICANTS

12    The first contention of the Applicants is that they are not “creditors” of the Grocon companies as that term is used in s 444D(1) (or the DOCA). Therefore, the Liquidators’ pursuit of the return of the Drawdown Monies is contended not to be within the DOCA such that they do not require the leave of the Court to continue these proceedings against the Grocon companies. The Liquidators contend that they seek recovery of the property of Heyday, Hastie Australia and Nisbet & Durney which the Grocon companies cannot hold other than as constructive trustees, so that the Drawdown Monies is held for the benefit of the creditors of Heyday, Hastie Australia and Nisbet & Durney.

13    However, the Applicants alternatively contend, should I decide that leave is required, that the legal issue to be determined and the legal foundation of their claim which provides the “solid foundation” and gives rise to a serious dispute is as follows:

(a)    The Grocon companies were at all times aware that they held the Drawdown Monies for the specific and agreed purpose of paying any “claim” which either of them might establish for breach of the various contracts which required Heyday, Hastie Australia and Nisbet & Durney to provide the bank guarantees. Those guarantees were intended only to provide a pool of funds from which legitimate claims made by the Grocon companies might be paid.

(b)    Any “claim” the Grocon companies might have had ought to be dealt with by a DOCA or in a winding up. The draw downs were contrary to Ch 5 of the Act and deprived the remaining unsecured creditors of Heyday, Hastie Australia and Nisbet & Durney, including employees, of any distribution of those funds on a pari passu basis in accordance with ss 555, 556 and 560 of the Act. The Grocon companies, as unsecured creditors, were not entitled to take the property of Heyday, Hastie Australia and Nisbet & Durney and deny its availability to all unsecured creditors.

(c)    In the circumstances of the Grocon companies having obtained the drawn down monies when Heyday, Hastie Australia and Nisbet & Durney were under administration or in liquidation, and so where each of the Grocon companies was at best an unsecured creditor, that money must be returned to the Liquidators. In this manner, the unsecured creditors of Heyday, Hastie Australia and Nisbet & Durney can each be treated in accordance with their statutory priorities.

(d)    The Liquidators’ application to recover the property impermissibly taken by Grocon Constructors (NSW) Pty Ltd when the companies were under administration, and Grocon Constructors Pty Ltd when they were in liquidation, is not a “debt payable” by those Grocon companies; rather, the Liquidators’ seek the recovery of the property of Heyday, Hastie Australia and Nisbet & Durney.

(e)    The draw downs by Grocon Constructors (NSW) Pty Ltd and later Grocon Constructors Pty Ltd, by which they obtained no proprietary interest, was a dealing with the financial accommodation which each of Heyday, Hastie Australia and Nisbet & Durney had purchased upon the issue of each bank guarantee. The draw downs extinguished that financial accommodation, denying each of Heyday, Hastie Australia and Nisbet & Durney any ability to use that financial accommodation or to rely on the chose in action arising from it. The draw down was a “dealing affecting the property of the company” prohibited by s 437D of the Act.

14    On the above basis, the Applicants contend that the Court will be required to determine the operation of Ch 5 of the Act, upon an unsecured creditor seeking to advance itself ahead of other unsecured creditors after the relevant s 513C day, ignoring the pari passu predicate underpinning Ch 5. The Applicants contend that the Grocon companies must prove in the liquidation, subject to ss 555 and 556 of the Act and be dealt with pari passu with the relevant unsecured creditors. In essence, they contend that the Grocon companies have no entitlement to “self-help” themselves to pay their “claims” ahead of other unsecured creditors of Heyday, Hastie Australia and Nisbet & Durney, and must return the Drawdown Monies to the Liquidators.

15    The Applicants also contend that the provisions of Ch 5 of the Act operated to make void the draw down by Grocon Constructors (NSW) Pty Ltd during the administration of the Hastie Group companies and the draw down by Grocon Constructors Pty Ltd in the course of the winding up, and this is a seminal question which can only be determined by the Court. If that question is answered positively, the Liquidators contend that they have available to them at least the ability to trace so as to achieve a return to the relevant unsecured creditors.

16    As to the other considerations to take into account, the Applicants pointed to a number of factors:

(a)    The Liquidators’ pursuit of the Drawdown Monies is of substantial value and raises serious questions of law.

(b)    There is a degree of complexity in the legal and factual issues involved. The impact of Ch 5 upon unsecured creditors holding bank guarantees at the s 513C day appears not to have previously been considered. There is a real question as to whether the DOCA binds the Liquidators and Heyday, Hastie Australia and Nisbet & Durney, as they do not pursue the Drawdown Monies as creditors but as the beneficiaries of a constructive trust.

(c)    These proceedings have been set down for trial.

(d)    The issue is one which needs to be determined by a court.

(e)    The unsecured creditors of Heyday, Hastie Australia and Nisbet & Durney will suffer prejudice if leave is not granted.

(f)    If leave is granted, the Deed Administrators would not be unreasonably distracted from the performance of their statutory duties or obliged unnecessarily to incur substantial legal costs, as the matter has been on foot since November 2017, and the officers of the Grocon companies can readily assist the Deed Administrators who can rely upon the advice provided by their legal advisors.

THE POSITION OF THE GROCON COMPANIES

17    The Grocon companies submit that leave should be denied as:

(a)    despite being provided with a generous opportunity to do so (see Hastie 1), no legal basis for a serious question to be tried giving rise to a proprietary remedy has been articulated by the Applicants in the pleadings, correspondence or submissions;

(b)    various discretionary factors militate against the grant of leave, including that, if leave were granted, the Deed Administrators would be required to expend significant resources defending the claim, at the expense of the Grocon companies’ creditors, and will be at a forensic disadvantage; and

(c)    to permit the Applicants’ claim to go forward would undermine the commercial certainty that is provided by bank guarantees which are a long-standing and ubiquitous commercial mechanism for risk allocation in construction sub-contracting arrangements.

18    The Grocon companies submit that the authorities are clear that a bank guarantee is an independent third party undertaking between the bank and the beneficiary of the bank guarantee on its own terms, without recourse to the customer. Furthermore, monies paid out pursuant to a bank guarantee procured by a company to a third party are not considered dispositions of the company's property – see for instance, Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407 at 438, Thompson Land Limited v Lend Lease Shopping Centre Development & Anor [2000] VSC 108 at [82]-[83], United Petroleum Pty Ltd v Bonnie View Petroleum Pty Ltd (in liq) [2017] VSC 185 at [394]. Hence, the Grocon companies submit that any reliance on ss 440D, 437D(2), 500, 555, 556 and 560 of the Act is misplaced.

19    The Grocon companies submit that what is in issue is whether the claims to those monies drawn down is proprietary in nature. The Grocon companies also contend that the claim is entirely disconnected from the terms of the relevant guarantees. By way of example, they refer to the terms of the Hastie Australia bank guarantee:

Guarantee Amount

In consideration of [Grocon NSW] accepting this Undertaking and its terms, ANZ undertakes unconditionally to pay [Grocon NSW] on written demand from time to time any sum or sums up to an aggregate amount not exceeding [the Amount].

Undertaking

ANZ will pay the Amount or any part of it to [Grocon NSW] upon presentation of this original Undertaking (accompanied by a written demand) at any ANZ branch located within Australia without reference to [Hastie Australia] and even if [Hastie Australia] has given ANZ notice not to pay the money, and without regard to the performance or non-performance of [Hastie] or [Grocon NSW] under the terms of the contract or agreement.

…

This Undertaking remains in force until the first to occur of:

-    [Grocon NSW] notifies ANZ in writing that the Undertaking is no longer required.

-    This original Undertaking is returned to ANZ.

-    ANZ has paid to [Grocon NSW] the Amount or the balance outstanding of the Amount.

20    Therefore, the Grocon companies contend that the claim now brought is contrary to binding High Court authority, contrary to the terms of the guarantees, and has a deeply uncommercial result that would undermine the utility of a bank guarantee, widely used in the construction industry.

21    Further, the Grocon companies submit that the Applicants have not demonstrated how the Drawdown Monies are traceable into any particular assets of the Grocon Group companies (or any of them).

22    So the Grocon companies submit there cannot be a serious question to be tried and leave should not be granted. They say that the Liquidators should lodge claims in respect of the guarantees via the proof of debt procedure to be dealt with by the Deed Administrators appointed to the Grocon companies. In this regard, reliance was placed on the comments of McPherson J in Ogilvie-Grant v East (Re Gordon Grant & Grant Pty Ltd) [1983] 2 Qd R 314 at 317, that ordinarily a proof of debt procedure will be more expeditious and less expensive than normal proceedings and that a claimant should ordinarily adopt the course of lodging a 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 the particular claim in dispute.

23    Then the Grocon companies finally submit that there are a number of factors that indicate leave should not be granted, effectively taking a contrary position to each of the factors relied upon by the Applicants.

DISCUSSION

24    I have decided to grant leave to proceed. In light of all the interlocutory orders made on 1 October 2021 and terms imposed on the leave granted on 27 October 2021, the way forward in these proceedings in the context of the application for leave under s 444E(3) of the Act and as a matter of proper case management is relatively straight forward. A trial date has now been set commencing on 15 March 2022 for all the respondents still participating in these proceedings, including the Grocon companies. Interlocutory steps have been set down, and issues for determination identified. Leave to proceed so far as the Grocon companies is concerned is granted on terms limiting the extent of the dispute and the issues to be determined between them and the Applicants. On this approach, the extent of the disputation should be confined. The Grocon companies themselves contend that the central legal issue which arises for determination in the claims against the Grocon companies in these proceedings is simple – that is, whether the Liquidators have any proprietary claim to the Drawdown Monies. One day (commencing not before 8 April 2022) has been set down to consider this specific issue between the Applicants and the Grocon companies. The resolution of that issue is said to be dispositive of the entire claim.

25    I should make one other observation regarding the basis of the claim, and whether the claim has a solid foundation and gives rise to a serious dispute. As I have indicated, the discretionary factors are informed by the context, scope and purpose of Pt 5.3A of the Act. It is not possible to list in an exhaustive manner all the circumstances in which granting leave to proceed may be appropriate. The many discretionary factors relevant to the grant of leave under s 444E(3) of the Act touch upon the orderly disposal of claims made by an applicant against a company subject to a deed of company administration. In this case, where there is a serious dispute, the orderly disposal of the claims by the Applicants and the determination of the issues before the Court that divide the Applicants and the Grocon companies is of paramount importance. At this interlocutory stage, it is not appropriate to examine the strength of the Applicants’ claims. The arguments of the Grocon companies have much force on the basis of the nature of a guarantee and its operation, but the particular argument of the Applicants has not been tested in the context of Ch 5 of the Act. This at least gives rise to a serious dispute that requires the determination of a court of law.

26    I put aside the question raised by the Applicants as to whether leave under s 444E(3) is required at all. Even if leave is not required, the approach I have taken is a matter of case management to ensure the proper conduct of these proceedings (as a whole, and as they pertain to the Applicants and the Grocon companies) and to ensure the just resolution of the dispute not only according to law but as quickly, inexpensively and efficiently as possible.

27    One way or the other, the legal issue relating to the guarantees will need to be determined by a court. These proceedings are now advancing to a trial to determine that issue. I do not accept that the alternative (lodging a proof of debt with that issue still to be determined) will in the end be a lower cost or more efficient avenue to pursue the present claim now formulated in these proceedings. These in themselves are good reasons to depart from the mere lodging of a proof of debt as suggested by the Grocon companies. The real issue before me just comes down to choosing between alternative disputation processes; the current proceedings are clearly preferable to finally determine the issues raised between the Applicants and the Grocon companies.

28    I am mindful of the evidence given by Mr Craig Peter Shepard (one of the Deed Administrators of the Grocon companies) that he will be unreasonably distracted from his duties to creditors and that the creditors will be prejudiced because of the costs incurred in defending these proceedings. Mr Shepard says that:

(a)    the expenditure of funds and conduct of the litigation will diminish the return to creditors;

(b)    the Deed Administrators have been required to approach these proceedings as if it were commenced afresh and that a “substantial portion” of the steps to trial have not yet been completed, such that the Deed Administrators are concerned that they will be unreasonably distracted; and

(c)    he expects that the review and collation of the evidence is likely to be costly and time-consuming as the Deed Administrators have a “limited number of documents” collated in the file maintained for the purposes of this litigation and he believes that there will be significant difficulties in obtaining evidence and instructions from former officers of the Grocon companies.

29    However, in view of the interlocutory orders made on 1 October 2021 and 27 October 2021, and the terms of the leave imposed, I consider this distraction, burden and expenditure of funds will be minimised.

30    In all the circumstances, it is appropriate to grant leave under s 444E(3) of the Act on the terms provided for in the orders made on 27 October 2021, and in light of the orders made on 1 October 2021 which progress these proceedings to a trial commencing on 15 March 2022.

Associate:

Dated:    3 November 2021

SCHEDULE OF PARTIES