FEDERAL COURT OF AUSTRALIA

Hastie Group Limited (in liq) v Multiplex Constructions Pty Ltd (Formerly Brookfield Multiplex Constructions Pty Ltd) (No 3) [2022] FCA 1280

ORDERS

THE COURT ORDERS THAT:

1.    The parties confer and thereafter by 2pm on 18 November 2022 file and serve any agreed minutes of orders reflecting the reasons of the Court, or in default of agreement, separate minutes of orders and short written submissions (of no longer than five pages).

2.    A case management hearing is listed at 10.15am on 23 November 2022 to the extent desired by the Court or any party if the orders are not determined by the Court on the papers.

3.    Unless otherwise ordered by the Court on its own motion or otherwise requested by any party, the orders of the Court will be determined on the papers.

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

ORDERS

THE COURT ORDERS THAT:

1.    The parties confer and thereafter by 2pm on 18 November 2022 file and serve any agreed minutes of orders reflecting the reasons of the Court, or in default of agreement, separate minutes of orders and short written submissions (of no longer than five pages).

2.    A case management hearing is listed at 10.15am on 23 November 2022 to the extent desired by the Court or any party if the orders are not determined by the Court on the papers.

3.    Unless otherwise ordered by the Court on its own motion or otherwise requested by any party, the orders of the Court will be determined on the papers.

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

REASONS FOR JUDGMENT

MIDDLETON J:

INTRODUCTION

1    These two proceedings concern the liquidation of the Hastie Group of companies, which comprises the First Applicant and a number of its wholly owned subsidiaries. The Hastie Group, which was headquartered in Australia, ran a business of providing mechanical, electrical and plumbing services in a number of countries.

2    On 28 May 2012 (the ‘Appointment Date’), voluntary administrators were appointed in respect of the Hastie Group companies party to the main proceeding (VID1277 of 2017) (the ‘Hastie Entities’, being the First and Fifth to Twenty-Second Applicants), and by 31 January 2013, the creditors of the Hastie Entities resolved to voluntarily wind up those companies. The Applicants (the Hastie Entities and their liquidators) commenced the main proceeding in this Court in November 2017 seeking its assistance to recover property and to assert rights held by the Hastie Entities as against a number of construction companies (being the Respondents in the main proceeding) who had separately entered into agreements with various Hastie Entities in respect of various construction projects (the ‘subcontracts’).

3    I will return separately to the other proceeding (VID237 of 2022, the ‘winding up proceeding’) later in these reasons, which was only commenced in April 2022. Until I deal separately with that winding up proceeding, my reasons only concern the main proceeding.

4    The Applicants allege that the Respondents failed to pay to the Hastie Entities the cumulative sum of $60 million in “receivables” owing as at 28 May 2012 (the ‘Receivables Case’). The Applicants further allege that after the Appointment Date, the Respondents impermissibly drew the cumulative sum of $63.5 million on performance guarantees (also referred to as “bank guarantees” or “performance bonds”) which were purchased by the Hastie Entities and provided to each of the Respondents as an alternative to the retention of monies from progress payments under their respective subcontracts (the ‘Bank Guarantee Case’). The Applicants assert that the monies owed in receivables and the monies drawn down by the Respondents on the bank guarantees are each property of the Hastie Entity which performed the work under the subcontract and purchased and provided the bank guarantee. The now sole Liquidator of the Hastie Entities (the Second Applicant) seeks to recover those monies in order to apply them in satisfaction of the liabilities of each of the Hastie Entities in accordance with Chapter 5 of the Corporations Act 2001 (Cth) (the ‘Corporations Act’ or the ‘Act’), that is, to priority creditors such as Hastie Entity former employees first, and then on a pari passu basis among remaining unsecured creditors.

5    In total, the Applicants seek to recover approximately $120 million for the benefit of its creditors, but this judgment is not concerned with the quantum of that sum. The trial in the main proceeding throughout March to May 2022 (the “liability trial”) was only concerned with the liability issue of whether the Applicants are entitled in principle to the recovery of the property in question in this case and to the rights they assert as against the Respondents. The matters of principle as between the Applicants and each Respondent are broadly the same. Although there are differences in their respective contractual arrangements, those differences do not produce a relevantly different result on the principal common issues.

6    The Respondents’ respective positions against the Applicants’ Receivables Case and Bank Guarantee Case are broadly aligned. In respect of the Receivables Case, the Respondents assert first, that no valid receivables were ever owing under the relevant subcontract. Second, if a receivable is owing, they are entitled to set-off that amount (pursuant to s 553C of the Act) against monies owed by the Hastie Entity to the respective Respondent under the relevant subcontract by reason of the loss and damage it has suffered by the Hastie Entity being unable to complete the works under the subcontract. Third, some of the Respondents also contend that the limitation period for the relevant Hastie Entity’s claim to recover the receivables has expired.

7    Each of the Respondents contends that the value of their claims against the relevant Hastie Entity is greater than the amount of the unpaid receivables alleged by the Applicants and the amount of the guarantee proceeds held by them.

8    In respect of the Bank Guarantee Case, the Respondents deny the Applicants have any proprietary rights in the proceeds of the respective guarantees. Accordingly, their position is that the Applicants’ recourse to various provisions of Chapter 5 of the Act is not applicable. In addition, some of the Respondents also contend that the limitation period for the relevant Hastie Entity’s claim to recover the proceeds of the guarantees has expired.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

9    Before the Appointment Date, Hastie Group Limited (the First Applicant) was a public company listed on the Australian Securities Exchanges, and was the parent company of a number of wholly owned subsidiaries (43 subsidiaries, as at the Appointment Date).

10    The Hastie Group carried on the business of providing mechanical, electrical and plumbing services in countries including Australia, and through its various subsidiaries, was engaged in performing works on a number of building projects or had performed works on completed projects. The Hastie Entities in these proceedings entered into major long-term building subcontracts with head builders, being the Respondents, on large-scale multimillion dollar projects around Australia.

11    Pursuant to those subcontracts, the Hastie Entities undertook services and rendered progress payment claims or invoices to the respective Respondents, the amounts in relation to which were owing to the Hastie Entities as at the Appointment Date.

12    As part of each subcontract, the Hastie Entities were required to secure their performance, and in respect of each Respondent, this was done by way of bank guarantee issued to the Respondent. As is normal commercial practice, each Hastie Entity held a “bank guarantee facility” with the issuing bank for the purpose of its issuing bank guarantees to beneficiaries, and the bank guarantee itself was entered into by way of a separate agreement between the issuing bank and the respective Respondent beneficiary.

13    It is also relevant to note that the Hastie Group had in place a Deed of Cross-Guarantee dated 30 June 2005, under which each ‘Group Entity’ defined under the deed would guarantee to a ‘Creditor’ (as defined) the payment in full of any debt payable by another Group Entity

14    On 28 May 2012, Messrs Crosbie, Carson and McEvoy were appointed as voluntary administrators of the companies in the Hastie Group, including the Hastie Entities.

15    After the Appointment Date, the Respondents each failed or refused to pay the amounts owing as at the Appointment Date. Instead, each Respondent:

(a)    elected to terminate or suspend performance of their respective subcontracts;

(b)    stated that they had or would incur costs and expenses to have other providers perform the services the Hastie Entities now could not perform, and asserted an entitlement to set-off against the amount sought by the relevant Hastie Entity; and

(c)    either retained the bank guarantee provided by the relevant Hastie Entity despite a request for its return, or ‘called’ on the bank guarantee, resulting in the issuing bank drawing down on the guarantee and providing the proceeds to the Respondent.

16    On 30 and 31 January 2013, the creditors of the Hastie Entities resolved that each of those companies be wound up and the administrators were appointed as liquidators of each company.

17    On 14 November 2017, the Applicants commenced proceedings in this Court as against twenty-nine respondents. The claims as against some of those respondents have since been discontinued.

18    It is unnecessary to detail comprehensively the procedural history of these proceedings. It is sufficient to refer briefly to two previous judgments which I delivered in the case management of the main proceeding.

19    First, in my reasons for judgment on 22 December 2020, I granted leave to the Applicants to file an amended originating process and pleading, and found on an interlocutory basis for the purposes of allowing the main proceeding to continue to trial that the receivable debt and bank guarantee claims as amended were covered sufficiently in the initial originating process and pleading such that they were not “new claims”: Hastie Group Limited (in liq) v Multiplex Constructions Pty Ltd (Formerly Brookfield Multiplex Constructions Pty Ltd) [2020] FCA 1824 (Hastie Interlocutory Decision) at [18], [22].

20    Second, on 27 October 2021, as the Twelfth and Thirteenth Respondents (together, ‘Grocon’) had by that time entered external administration and were subject to a deed of company arrangement, I granted leave under s 444E(3) of the Act for the Applicants to proceed against them in respect of specific issues.

21    I will now turn to the Applicants’ claims in the main proceeding.

SUMMARY OF CLAIMS

Points of Claim

22    The Applicants’ claims as against all of the Respondents were initially contained in the Concise Statement filed on 14 November 2017 and the Points of Claim filed on 13 July 2018. I will detail the procedural history of the pleadings later in these reasons when I come to the issue of limitation of actions. The Applicants now rely on their Second Further Amended Originating Process filed on 3 March 2021 and the following Points of Claim filed as against each individual group of Respondents (I note that the various “Further Amended Points of Claim” referred to below are not referred to in the Second Further Amended Originating Process, but I granted leave to file those during the trial and they were relied upon by the Applicants in their submissions):

(1)    the Further Amended Points of Claim filed 22 March 2022 as against the First and Second Respondents (‘Multiplex’);

(2)    the Amended Points of Claim filed 26 February 2021 as against the Third Respondent, the Amended Points of Claim filed 26 February 2021 as against the Fourth and Thirtieth Respondents, and the Amended Points of Claim filed 26 February 2021 as against the Fifth Respondent (those respondents together, ‘Lendlease’);

(3)    the Amended Points of Claim filed 26 February 2021 as against the Seventh and Eighth Respondents (‘Badge’);

(4)    the Further Amended Points of Claim filed 6 April 2022 as against the Tenth Respondent (‘CPB’);

(5)    the Further Amended Concise Statement filed 26 February 2021 as against the Twelfth and Thirteenth Respondents (Grocon);

(6)    the Further Amended Points of Claim filed 29 March 2022 as against the Fourteenth Respondent (‘Hansen Yuncken’);

(7)    the Amended Points of Claim filed 10 March 2021 as against the Fifteenth Respondent (‘John Holland’);

(8)    the Amended Points of Claim filed 26 February 2021 as against the Sixteenth Respondent (‘Laing O’Rourke’);

(9)    the Amended Points of Claim filed 26 February 2021 as against the Nineteenth Respondent (‘Thiess’);

(10)    the Further Amended Concise Statement filed 26 February 2021 as against the Twenty-First to Twenty-Third Respondents (‘Watpac’); and

(11)    the Amended Points of Claim filed 26 February 2021 as against the Twenty-Fifth Respondent (‘Scentre’).

23    I shall briefly outline the Concise Statement filed 14 November 2017 as against the Respondents for the purpose of indicating the claims made against the Respondent as at that date. Although the Applicants no longer rely on the Concise Statement or initial Points of Claim, those pleadings are relevant to the limitation period issues raised by certain Respondents.

24    The Concise Statement summarised the Receivables Case and the Bank Guarantee Case as follows, noting however that the Receivables Case and the Bank Guarantee Case are not completely separate, as they share elements and the two cases are not separated in the Applicants’ pleadings. It is convenient to refer to these as separate cases, as the issues for determination were framed in that way.

4     The assets of the Hastie Group of companies include invoices or progress payment claims issued prior to or in respect of work completed prior to 28 May 2012 by the Hastie Group of companies to each of the Respondents identified in Annexure 1 in the amount set out therein.

5     Each of the Respondents has refused to make payment and asserted an entitlement to set-off against the amount sought, an alleged indebtedness.

6     Further or alternatively, several of the Respondents have on or after 28 May 2012 called upon or failed to return bank guarantees issued in favour of those Respondents by various banks at the request of members of the Hastie Group of companies prior to 28 May 2012 (refer Annexure 1).

7     In consequence of the said Respondents having called upon the various Bank Guarantees as alleged, the liabilities of the Hastie Group of companies have been increased after 28 May 2012 by at least $69,279,263.43.

8     The liquidators contend that in consequence of the operation of the Personal Property Securities Act 2009 (Cth) (PPSA) none of the Respondents are entitled to set-off under s 553C of the Corporations Act 2001 (Cth) (Corporations Act) (the no mutuality proposition).

9     Further or alternatively, the liquidators contend that the bank guarantee creditors are not, and were not, entitled to call upon the bank guarantees until such time as their claims have been admitted in the liquidations, alternatively at all.

25    The Applicants no longer press the “no mutuality proposition” referred to at [8] above, which was based on a Supreme Court of Western Australia decision at that time before it was overturned on appeal: Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (receivers and managers appointed) [2017] WASC 152; (2017) 52 WAR 90 (Forge First Instance).

26    I shall now outline the structure of the various Points of Claim filed against each group of Respondents so as to indicate the commonality of the issues as between the various Respondents. I will note any significant individual issues that arise as against only one or some of the Respondents separately later in this section.

27    Each Points of Claim filed is divided into sections pertaining to particular project subcontracts between the relevant Hastie Entity and Respondent. In respect of each project subcontract, the Applicants set out the following matters:

(a)    the terms of the subcontract;

(b)    the relevant bank guarantee provided to the Respondent;

(c)    the relevant Hastie Entity’s payment claims under that subcontract, and therefore the total receivables claim for work performed under the subcontract;

(d)    the subsisting legal position under the Act at the time of the Hastie Entity’s entering into voluntary administration;

(e)    the Respondent’s termination or suspension of performance under the subcontract, and the Respondent’s calling on and drawing down of the bank guarantee (or alternatively, failure to return the bank guarantee);

(f)    the effect and application of the Act in relation to the Respondent’s calling on and drawing down of the bank guarantee, pursuant to the Act’s regime in relation to voluntary administration and winding up;

(g)    the relevant Hastie Entity’s total claimed debt as against the Respondent and its demand for payment made to the Respondent;

(h)    the Respondent’s failure to pay the amount demanded and failure to provide evidence to establish its claim for which it asserts an entitlement to set-off; and

(i)    on the premises of the above, the Respondent’s liability to the Hastie Entity or Liquidator.

28    The relief sought under the Applicants’ Second Further Amended Originating Process filed on 3 March 2021 consisted of orders that each Respondent pay to the Applicants certain amounts claimed in the respective Points of Claim. However, the trial of the main proceeding was split between liability and quantum by orders made on 1 October 2021, so that the trial commencing on 15 March 2022 only concerned the liability issues.

29    Given this bifurcation of the proceeding, the relief sought by the Applicants at this liability trial differed from the orders sought in the Second Further Amended Originating Process, and instead the relief sought was in the form of orders and directions to the Liquidator as to the winding up of the Hastie Entities. I will discuss these later in this section. However, it is important not to lose sight of the ultimate aim of the Liquidator in commencing and continuing these proceedings: namely, to recover money so as to be distributed in accordance with the Act.

30    To some extent, during the course of the trial, the Applicants also raised arguments and issues that were not canvassed in their pleadings, the agreed common issues in the liability trial or their opening written submissions. Each Respondent complained about the impermissible and unfair departure by the Applicants from the agreed common issues, the pleadings and the relief originally sought in the Applicants’ Second Further Amended Originating Process.

31    For the reasons which will become apparent, I do not need to delve into these complaints. There is no doubt there has been a re-casting of issues, some arising from concessions or an appreciation by the Applicants of some difficulties with their case. The main proceeding has changed over the years in its focus, particularly after the Hastie Interlocutory Decision in 2020 when the preliminary question regarding the “no mutuality proposition” in reliance on Forge First Instance fell away. However, each Respondent has been able to deal with the re-casting, which was primarily focussed on the appropriate relief. The underlying legal analysis by the parties, refined and expanded on from time to time by the Applicants, has remained constant in the reliance by the Applicants on their view of the overriding operation of the Corporations Act (which view I have rejected in these reasons).

32    I shall now set out the Applicants’ claims against the Respondents as contained in their Points of Claim in greater detail.

Terms of the subcontracts

33    Although the subcontracts are different for each Respondent, and the subcontracts for each project for each Respondent are also not always the same, the subcontracts are relevantly similar as between each Respondent. At this point, it is convenient to summarise the basic content of relevant terms of the subcontracts as set out in the Points of Claim as against each group of Respondents. The relevant terms of each subcontract are comprehensively set out by the Applicants in Schedule A to their closing written submissions dated 6 May 2022, which subject to some minor matters were agreed with by the Respondents for the purposes of the liability phase of the main proceeding. I have proceeded on the basis of this agreement for the purposes of the liability trial.

34    First, the fundamental obligations under each of the subcontracts were that the relevant Hastie Entity was to perform the works under the subcontract, and the Respondent was to pay the contract sum.

35    Second, each subcontract required some form of performance security to be provided by the Hastie Entity to the Respondent. Generally, each subcontract included the option of the Hastie Entity providing a “retention amount” to the Respondent (a cash amount to be held by the Respondent) or an “unconditional undertaking” or guarantee provided by a bank or financial institution in the same amount (ie a bank guarantee). Generally, under each of the subcontracts, the Respondents elected or received a bank guarantee. Each subcontract included terms in relation to the release of the security and other terms concerning the legal rights and interests arising in relation to the security.

36    Third, each subcontract provided for a mechanism by which the Hastie Entity would submit payment claims to the Respondent for work performed. Under most subcontracts, the Respondent would then assess the claims and issue a payment schedule. Generally, each subcontract also provided for a mechanism by which the Respondent could set-off any amounts due to the Hastie Entity or have recourse to the security provided as described above against amounts which the Hastie Entity were liable to pay to the Respondent.

37    Fourth, generally each subcontract provided for a right of termination upon appointment of an administrator to the Hastie Entity or a right to take relevant work out of the hands of the Hastie Entity, and permitted the Respondent to employ other persons to carry out and complete the works.

The bank guarantees provided to the Respondents

38    As stated earlier, the bank guarantees provided to the Respondents were issued by an issuing bank. The issuing bank in each case had entered into a facility agreement with the relevant Hastie Entity to provide the bank guarantee facility to the Hastie Entity. This arrangement is separate to the bank guarantee itself.

39    The bank guarantees in this proceeding were issued pursuant to one of the following bank guarantee facility agreements with an issuing bank:

(a)    a Multi-Option Facility Agreement between Hastie Group Limited and ANZ Bank on or about 1 April 2008;

(b)    a Facility Agreement between Hastie Group Limited and NAB on or about 1 April 2008;

(c)    a Facility Agreement between Hastie Group Limited and Westpac on or about 1 April 2008, as varied and restated on or about 29 June 2010;

(d)    a Standstill Facilities Agreement between Hastie Group Limited and the ANZ Bank on or about 11 April 2011, as varied and restated on or about 11 May 2011; and

(e)    a Syndicated Facility Agreement (or ‘SFA’) between Hastie Group Limited and various banks, including the ANZ Bank and Westpac, on or about 7 June 2011, as varied and restated on or about 10 April 2012.

40    In each Points of Claim, the Applicants referred to the following features of the relevant bank guarantee facility agreement applicable to each respondent:

(a)    the issuing bank agreed to make available to the relevant Hastie Entity financial accommodation by way of bank guarantees in the form provided in the facility agreement;

(b)    upon issue of a bank guarantee by the issuing bank, the Hastie Entity became liable to pay to the issuing bank an issuance fee (commonly being a percentage of the face value of the bank guarantee); and

(c)    upon demand for payment under a bank guarantee by the recipient, the Hastie Entity became liable to pay (immediately or within a certain period of time) all amounts paid out by the issuing bank, together with any costs, liability or loss incurred by the issuing bank in paying out the financial accommodation.

41    The Applicants’ submissions made particular reference to the terms of the SFA, which will be set out in detail later in these reasons.

42    Again, although the bank guarantees issued to each Respondent were not substantively identical, and the bank guarantees in respect of each project for each Respondent were also not always substantively identical, the bank guarantees were relevantly similar as between each Respondent.

43    The Points of Claim as against each Respondent sets out each bank guarantee issued and provided to each Respondent, and asserts that upon issue of the bank guarantees, the relevant Hastie Entity became liable to repay to the issuing bank as loans any amounts paid out upon the guarantees (plus interest and other costs).

44    The Applicants then contend that at all material times from the date of issue of the bank guarantee, each bank guarantee was an asset of the relevant Hastie Entity or the Hastie Group, being financial accommodation which had been purchased from the issuing bank, and was property of the relevant Hastie Entity within s 9 of the Act.

Payment claims and receivables

45    For each project, the Applicants assert that the relevant Hastie Entity performed the services and did the works under the relevant subcontract, and submitted payment claims or issued invoices for amounts due for the work completed, pursuant to the subcontract. Under most of the contractual regimes, the relevant Respondent then issued payment schedules in response to those payment claims.

46    The aggregate outstanding amount of such payment claims and invoices payable to the relevant Hastie Entity prior to entering administration is referred to as the “receivable” for each project. The Applicants assert that each receivable was an asset of the relevant Hastie Entity as at the Appointment Date.

47    As noted earlier, given the bifurcation of the liability and quantum in this proceeding, the amounts claimed in the Points of Claim and the underlying payment claims, schedules and invoices do not need to be considered in detail in these reasons. Rather, certain of these documents were accepted into evidence on an indicative basis to the extent necessary for the determination of the liability issues of the Applicants’ Receivables Case.

The effect and application of the Corporations Act

48    The Appointment Date on which each Hastie Entity entered voluntary administration under s 436A of the Act – being 28 May 2012 for each of the Hastie Entities – brought certain consequences under the Act. For example, as at the Appointment Date, s 440D of the Act immediately denied each Respondent any entitlement to begin or continue a proceeding in a Court against a Hastie Entity or in relation to any of its property except with the administrators’ written consent or the leave of the Court.

49    None of the Respondents was a “secured creditor” of any Hastie Entity at the Appointment Date within the meaning of s 9 of the Act. Each Respondent was therefore an unsecured creditor.

50    It is then contended that each Respondent who presented and drew down on their bank guarantee, without the consent of the administrators and without notifying the administrators of its intent to do so, did not obtain any proprietary interest in nor any immediate entitlement to the amount drawn down and received from the issuing bank, which remained at all times and remains the property or money of the relevant Hastie Entity.

51    In particular, it is contended that, by the Respondent engaging (or rather, as finally submitted by the end of the trial by the Applicants, by the issuing bank engaging) in a transaction or dealing affecting property of the Hastie Entity under administration, the call or draw down on the bank guarantee was void by virtue of s 437D.

52    It is then contended that the winding up of the Hastie Entities by creditors’ resolution pursuant to s 439C(c) of the Act – on 30 or 31 January 2013 – also brought certain consequences under the Act, being that:

(a)    each Respondent is prohibited by s 500(2) of the Act from bringing proceedings against a Hastie Entity to secure an order transferring to the Respondent proprietorship over the amount drawn down on the bank guarantees;

(b)    having regard to s 553 of the Act (and Chapter 5 of the Act generally), each Respondent is required to seek to be admitted to proof in the external administration of the Hastie Entity in respect of any claims against the Hastie Entity arising from or connected with the relevant subcontract;

(c)    pursuant to s 474 of the Act, the Liquidator must take into his custody or control the amount drawn down by each Respondent under the bank guarantee, and each Respondent must immediately return that amount to the Liquidator;

(d)    pursuant to s 506 of the Act, the Liquidator is entitled to exercise any of the powers the Act confers on a Liquidator in a winding up in insolvency;

(e)    each Respondent is subject to ss 555, 556 and 560 of the Act, which give effect to the pari passu principle and the priority payments regime, and because of which each Respondent is prohibited from using the proceeds of the bank guarantee to satisfy its claims against the Hastie Entity; and

(f)    as elaborated in the Applicants’ submissions (but not specifically referred to in any of the Points of Claim), s 468 of the Act has the effect of voiding any disposition of property of the Hastie Entity made after the Appointment Date, including each Respondent’s draw down of the bank guarantees.

53    On the above premises, the Applicants contend that the Liquidator is entitled to an order that the Respondents return to the Liquidator the debt owed to the Hastie Entities (being receivables owed and the proceeds of the bank guarantees which were drawn down).

54    Each Points of Claim refers to the Liquidator’s demand for payment on each Respondent in relation to each debt owed in respect of each relevant project subcontract.

55    In response to the Liquidators’ demand for payment, each Respondent refused to pay the amount demanded and asserted its own rights and entitlements under the subcontract. The Applicants contend that each Respondent has failed to provide evidence to the Liquidators that:

(a)    it has paid amounts to third parties to complete the works to be performed by the Hastie Entity under the relevant subcontract that are more than what the Respondent owes to the Hastie Entity;

(b)    such amounts or costs paid to third parties are or could be a claim against the Hastie Entity within the meaning of ss 553(1) and 553C(1) of the Act; and

(c)    such amounts or costs are or could be amounts for which the Hastie Entity is liable to the Respondent under or in connection with the relevant subcontract.

56    Accordingly, the Applicants assert that each Respondent remains liable to pay its outstanding debts to the Hastie Entities.

Common Issues

57    As part of the case management of the main proceeding, the parties were asked to agree and file a List of Issues in respect of each group of Respondents. From the Court’s point of view, this was to focus the collective minds of all those participating in the liability trial on the main issues really in dispute. However, at all times it was made clear that the ultimate determination of the issues in dispute ought to be resolved by the “pleadings” (I use quotations here because of the quasi-pleading status of concise statements and points of claim in this Court). Nevertheless, when the trial of the main proceeding was split between liability and quantum by orders made on 1 October 2021, those orders referred to the various Lists of Issues filed in respect of each group of Respondents. Whilst there are some issues which pertain only to particular Respondents, the common issues for the liability trial in the main proceeding were as follows (as summarised in the Applicants’ closing submissions, and which I will refer to in these reasons as the ‘Common Issues’). Because of those orders made on 1 October 2021, a number of the issues in the various Lists of Issues were not to be determined at the liability trial, including issues as to the amount of any alleged set-offs or as to the final quantum of each claim.

A.    Receivables

(a)    Issue 1: The subcontracts between the Hastie Entity and each respondent and the terms of same. (the” subcontract issue”) The framing of this issue does not identify any question to be resolved. However, to the extent that the identification of the relevant subcontracts is in dispute, whether any particular subcontracts ought to be treated as “representative”, and whether particular contractual provisions are required to be interpreted as a matter of general understanding prior to the determination of the issues that follow, I consider them as falling under this issue 1.

(b)    Issue 3: Whether the liquidator is statute-barred from getting in the receivables. (the receivables limitation defence)

(c)    Issue 4: Are each of the allegations of set-off “claims” within the meaning of s 553 of the Act? (the “claims issue”).

(d)    Issue 5: Have there been mutual dealings between each Hastie Entity and a Respondent who wants to have a claim admitted against that Hastie Entity to come within s 553C of the Act? (the “mutuality issue”). By the end of the trial of the main proceeding, it was accepted by the Applicants that mutuality was satisfied, but mutuality still remained in dispute in relation to the Respondents’ claims under the Deed of Cross-Guarantee.

(e)    Issue 7: Whether as and from 28 May 2012, s 553C of the Act applied exclusively to any “claim” founding a “set-off” alleged against a Hastie Entity? (the “s 553C exclusivity issue”). This question is framed as one of statutory exclusivity, but the Applicants’ submissions on this issue went also to whether s 553C requires that the set-off accounting be exclusively determined by the Liquidator.

(f)    Issue 7a: A further issue which was included in only some of the Lists of Issues but implicit where not included, and which related to an additional aspect of the s 553C exclusivity issue mentioned above, was: whether each respondent is entitled to deduct or set-off monies which it owed to each Hastie Entity as at 28 May 2012 any “loss and damage” that is a “claim” within s 553? (which I shall call the “automatic set-off issue”)

B.     Proceeds of the bank guarantees

(g)    Issue 8: Did the terms of each subcontract confer any proprietary interest in the monies drawn or any entitlement to treat those monies as the Respondent’s own funds? (the “property in proceeds question”).

(h)    Issues 9 & 10: Whether the purchase of each bank guarantee by the Hastie Entity amounted to “financial accommodation” and created a chose in action between the Hastie Entity and the bank? (the “chose in action question”).

(i)    Issue 11: Whether the credit (to the Respondent’s bank account) and debit (to the Hastie Entity’s loan account with the issuing bank) which happened in consequence of the guarantee being drawn by the Respondent were causally and transactionally linked? (the “causal and transactional link question”).

(j)    Issues 12 & 13: Was the drawdown on the bank guarantees void by reason of s 437D of the Act? (the “void transaction/disposition question”). It is to be noted that the Applicants’ submissions also include s 468 of the Act within the scope of this issue, which is resisted by the Respondents.

(k)    Issues 14 & 15: Can the Respondents retain the guarantee proceeds and can those proceeds be used to pay their “claims” in the face of s 555 and 556 of the Act? (the “retainer of the guarantee proceeds question”).

(l)    Issue 16: Did the Liquidator bring an action to recover the guarantee proceeds by filing this proceeding on 14 November 2017? (the “guarantee proceeds limitation defence”).

58    I note that the various Lists of Issues were formulated by the Applicants and were not agreed to in their entirety by the Respondents, some of whom made submissions regarding the precise scope and formulation of the particular issues. However, recalling my earlier comments about the purpose of the listing of issues for the liability trial, for the purposes of my reasons, it is convenient to deal with the Common Issues as framed above.

59    Other issues specific to particular Respondents shall be dealt with as they arise in my substantive reasons as to each of the issues.

Applicants’ application for leave to file amended reply to John Holland

60    It is convenient to deal here with one outstanding “pleading issue” raised during the course of the hearing of the liability trial. The Applicants sought leave to rely on an Amended Reply served on 12 May 2022. The proposed Amended Reply primarily sought to raise a claim based on an estoppel or election defence.

61    The new reply claims raised in the Amended Reply concern only the Airport Link Project (‘Project E’). The claims respond to John Holland’s defence that the contractual claims of the relevant Hastie Entity on this Project (Heyday) are defeated by clauses 10.7 and 10.8 of the relevant contract (‘Airport Link Agreement’).

62    In my view, as formulated the proposed Amended Reply (other than paragraph 10) fails to disclose an arguable claim. For that reason, leave to amend the reply other than paragraph 10 will be refused. John Holland does not oppose paragraph 10 being pleaded by way of reply.

63    Before explaining the reasons for my view in relation to the other paragraphs of the proposed Amended Reply, it is useful to set out some relevant background.

64    On 8 March 2022, John Holland served its written submissions in relation to the hearing commencing on 15 March 2022. Schedule 2 to the submissions raised various contractual defences to the Applicants’ claims (including in relation to Project E).

65    On 29 April 2022, John Holland served on the Applicants a proposed Amended Defence. The proposed amendments included reliance on clauses 10.7 and 10.8 of the Airport Link Agreement.

66    On 11 May 2022, John Holland was granted leave, without opposition, to file in Court its Amended Defence.

67    On 12 May 2022, the Applicants served on John Holland a proposed Amended Reply which asserted that by election and estoppel John Holland was prevented from seeking to rely on clauses 10.7 or 10.8 of the Airport Link Agreement to deny a liability to pay the Liquidator the unpaid invoice sum of $567,773.24, and that these provisions were unenforceable.

68    John Holland contends that both the proposed election and estoppel defence and the proposed “penalty” defence are “so untenable that it cannot possibly succeed” (see King v Patrick Projects Pty Ltd [2016] FCA 1110 at [15]) and so that the amendments should not be allowed.

69    Putting aside the procedural matters, apart from paragraph 10, the other pleas in the proposed Amended Reply are without sufficient particularity to be permitted.

70    As to the waiver or election plea, the only basis of this plea seems to be that the original Defence of John Holland to the Applicants’ Points of Claim did not raise the newly relied upon clauses of the Airport Link Agreement in its original reply. As Deane J said in the Commonwealth v Verwayen (1990) 170 CLR 394 (Verwayen) at 447 (and see also 408-409 and 414 per Mason CJ; 426-427 per Brennan J; 456-457 per Dawson J; 464-465 per Toohey J; 485-486 per Gaudron J; 498-499 per McHugh J):

In the ordinary case where a party to litigation amends a pleading to raise a new defence or to assert a new claim, questions of estoppel do not arise. The effect of earlier pleadings will be merely to reflect the particular party’s then intentions in relation to the conduct of the action and the other party will not be justified in assuming that subsequent amendment will not be made. Nor, in such a case, will amendment of the pleadings and subsequent conduct of the proceedings on the basis of the amendment give rise to any suggestion of unconscionable conduct on the part of the amending party. It will involve no more than the exercise of the right to seek to raise additional matters of claim or defence in accordance with the procedures laid down for that purpose.

71    Therefore, without more, the plea of the Applicants in their proposed Amended Reply would fail.

72    As to the allegation that John Holland would obtain a gain by the operation of clauses 10.7 and 10.8 that is “extravagant and unconscionable and out of all proportion to John Holland’s legitimate interest”, this has not been particularised at all, and on its face does not arise on the face of the Airport Link Agreement. Again, without more, the plea of a “penalty” (if that is the essence of the allegation) would fail.

73    At this stage of the proceedings, I will not allow such un-particularised pleas to be introduced by way of Amended Reply.

74    I will grant leave to the Applicants to file the Amended Reply other than the pleas in paragraphs 5 to 9 and 11.

Orders sought

75    As I have alluded to previously, the approach of the Applicants altered during the course of the liability trial. I will return to this issue at the end of these reasons.

76    The orders now sought by the Applicants at this liability trial are annexed to these reasons as an Appendix. I shall summarise the orders as sought below. It is appropriate to focus on these orders now sought as to determining the future conduct of the main proceeding. However, in determining whether there is any liability to the Hastie Entities, and as I have stressed already, the basis of analysis must be upon the pleadings, assisted by the various Lists of Issues and the submissions finally adopted by the Applicants.

77    The orders sought were under three headings for the purposes of the future conduct of the proceedings, being:

(1)    Advice as to admission of claims in each winding up;

(2)    Advice as to future conduct of the winding up; and

(3)    Directions to Liquidator for further conduct of the windings up.

78    First, the orders sought under proposed order 1 were that, pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), being Sch 2 to the Act, the Liquidator is justified and acting reasonably in the winding up of each Hastie Entity by admitting the claims made by the Respondents in their respective pleadings as claims that as at the Appointment Date did not bear a certain value (that is, they are of uncertain value: see s 554A of the Act).

79    Second, the orders sought under proposed order 2 were that the Liquidator is justified and acting reasonably in the winding up of each Hastie Entity:

(a)    in estimating the value of the Respondents’ claims as at the Appointment Date in accordance with the Australian common law on contract damages;

(b)    in treating the “debts” recorded in the debtor’s ledger of each of the Hastie Entities as being recoverable by the relevant company and not statute barred;

(c)    in admitting to proof in the winding up of the Hastie Entity, or seeking payment to that Hastie Entity of the “balance of the account” ascertained by the Liquidator applying s 553C of the Act in accordance with the principles in Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (Receivers and Managers appointed) [2018] WASCA 163; (2018) 53 WAR 325 (Forge).

(d)    on the basis that the draw on the bank guarantee made by each Respondent was void;

(e)    in seeking to take into his custody or under his control, the moneys drawn by each Respondent (excluding Baulderstone Qld) on bank guarantees (the “guarantee proceeds”);

(f)    in treating the guarantee proceeds drawn by each Respondent as a credit from the Hastie Entity which provided the bank guarantee drawn upon;

(g)    in treating each Respondent as having had notice as and from the Appointment Date, that the Hastie Entities were insolvent;

(h)    in treating as not allowed by ss 555 and 556 of the Act, the payment by a Respondent of the claims by that Respondent paying to itself guarantee proceeds.

80    Third, the orders sought under proposed orders 3 and 4 were that the Liquidator is directed to admit the order 1 claims as claims not bearing a certain value and then follow a prescribed mechanism by which, among other things:

(a)    each Respondent could provide particulars as to their admitted claims;

(b)    the Liquidator would estimate the value of the Respondents’ claims;

(c)    the Liquidator could receive advice from a King’s Counsel as to any questions which arise as to how to perform the directions;

(d)    the Liquidator would determine to admit or not admit the Respondents’ claims; and

(e)    the Liquidator would be entitled to file and serve any court application in respect of a Respondent’s indebtedness to a Hastie Entity.

81    In summary therefore, the Applicants sought orders that would confirm their interpretation of the application of the Act, require the Respondents to participate in the proof of debt process for each Hastie Entity and allow the Liquidator to commence new proceedings against any Respondent in respect of any indebtedness determined following the proof of debt process.

82    Finally, I note that no injunction or restraining order (final or interlocutory) is specifically sought in these proceedings to prevent any Respondent from “calling on” any bank guarantee not already called on.

Evidence in the main proceeding

83    During the trial of the main proceeding, I decided that various aspects of the pleadings would effectively be treated as fact for the purposes of the liability trial. In particular, the Court proceeded on the basis that the facts pleaded by the Applicants formed the basis of their claims concerning the operation of the Corporations Act, and the questions relating to the limitation defences.

84    There were a number of objections to evidence by the parties, but in the end, the parties either came to an agreement to allow certain evidence to be tendered for the purposes of the liability trial or the Court admitted the evidence subject to relevance. It is unnecessary for me to specifically refer to each of these items of evidence as I have in the course of these reasons referred to the evidence that is relevant and determinative of the issues that are required to be considered in this liability trial.

85    Further, the Court received the following evidence:

(a)    the contracts between each Respondent and each Hastie Entity (including, where no formal contract was entered into, correspondence said to constitute a contract), as summarised at Schedule A to the Applicants’ Closing Submissions dated 7 May 2022;

(b)    various other contracts relevant to the main proceeding, such as certain facilities agreements entered into between the Hastie Group and various banks, and the Deed of Cross-Guarantee;

(c)    the bank guarantees relevant to the main proceeding which were issued to each Respondent;

(d)    the date of recourse and amount drawn by each Respondent on the bank guarantees provided by each Hastie Entity, set out at Schedule B to the Applicants’ Closing Submissions dated 7 May 2022;

(e)    the status of each project subcontract, including whether the subcontract was terminated (and date thereof), or taken out of the hands of the Hastie Entity (and date thereof), or treated as having been terminated, set out at Schedule C to the Applicants’ Closing Submissions dated 7 May 2022; and

(f)    further documents tendered by agreement between the Applicants and each Respondent, such as relevant contractual notices pursuant to the abovementioned contracts, correspondence between the parties and limited affidavit evidence in relation to certain contracts.

86    Where a contract sought to be relied upon by the Applicants is not available and not put in evidence before the Court, I cannot and do not infer that such an alleged contract existed, or that its terms were identical to or similar to the other contracts before the Court. The Applicants may still be able to rely on s 1305 of the Act as prima facie evidence of their claims, even if a contract is not available. I refer later in these reasons to s 1305 and its operation.

87    Further, there is an issue concerning the contracts entered into between Multiplex and the Hastie Entities in relation to “Project K – Sydney Water HQ” and the so-called “Global Bonds” (being certain bank guarantees issued by ANZ to Multiplex in relation to Hastie Australia).

88    Evidence was tendered concerning the terms of the contract relating to the Sydney Water HQ project: see the affidavit of David Kenneth Cooksley sworn 1 February 2022 on behalf of Multiplex. There can be no doubt that an agreement was reached as to the Sydney Water HQ project via email correspondence (for example, as to price), but no formal contract was in evidence. I make no findings for the purposes of this main proceeding as to any specific terms as to payment, other than accepting the Applicants’ pleaded date when the receivables claimed were due and payable.

89    As to the “Global Bonds”, I proceed to accept the written bank guarantees at annexures DKC-41 and DKC-42 of the said affidavit of Mr Cooksley. Otherwise, there is no sufficient evidence produced to the Court to prove that Multiplex and Hastie Australia entered into an agreement in which Hastie Australia agreed to provide unconditional bank guarantees on behalf of and to secure performance by Hastie Australia and each subsidiary of the Hastie Group for works subcontracted to them by Multiplex regarding projects located in New South Wales, as pleaded by Multiplex: see [584] of Multiplex’s Amended Points of Defence.

PRINCIPAL CONCLUSIONS TO THE COMMON ISSUES

90    I shall now set out my principal conclusions as to the issues that require determination following the liability trial of the main proceeding, by reference to the Common Issues detailed earlier in these reasons.

Issue 1: The subcontracts between the Hastie Entities and each respondent

91    The relevant subcontracts were identified by the parties and were not in dispute, with the exception of certain contracts in relation to Multiplex which were not in formal written form and so were partly-written and partly-oral, and certain contracts that were not available to the parties and so the terms of which the Applicants sought to infer, each of which I referred to in the previous section of these reasons. To the extent necessary for the determination of the Common Issues, each of the relevant subcontracts has been considered for the purposes of these reasons and the effect of their operation demonstrated mainly by reference to an example subcontract involving Multiplex (the First Respondent). Where any of the relevant subcontracts are substantively different or produce a substantively different outcome for the purposes of these proceedings, this is discussed in my reasons.

Issue 3: Whether Hastie Entities’ Receivables Case statute-barred

92    The Hastie Entities’ claims, as detailed in the Annexure 1 to the Concise Statement and the Originating Process filed on 14 November 2017, were relevantly made on 14 November 2017. To the extent each such claim was made within the six-year limitation period applicable to each of those claims, the claims are not statute-barred. To the extent that any other claims of the Hastie Entities were not made on 14 November 2017 but were made after that date (for example, by the filing of the Applicants’ Points of Claim on 13 July 2018), the claims are statute-barred unless those claims were made within the six-year limitation period applicable to each claim.

Issue 4: Whether respondents have “claims” pursuant to s 553C of the Act

93    The Respondents’ contractual claims against the Hastie Entities pursuant to their respective subcontracts – asserted after the Appointment Date but the circumstances giving rise to which existed before the Appointment Date – are “claims” within the meaning of s 553 and therefore s 553C of the Act which may be set-off in accordance with s 553C.

94    However, the Respondents’ assertions of their entitlement to set-off pursuant to s 553C are not in themselves “claims” within the meaning of s 553.

Issue 5: Whether mutuality pursuant to s 553C of the Act

95    By the end of the trial, it was not in dispute that mutuality was satisfied for the purposes of s 553C in respect of the Respondents’ claims against the Hastie Entities pursuant to the respective subcontracts. I accept that such claims were mutual within the meaning of s 553C.

96    In addition, the Respondents’ claims against the Hastie Entities insofar as they are made pursuant to the Deed of Cross-Guarantee also satisfy the mutuality requirement imposed by s 553C.

Issue 7: Whether s 553C of the Act applies exclusively to the parties’ claims

97    It is not necessary to resolve the question as to whether set-off pursuant to s 553C of the Act applies exclusively to each of the Respondents’ claims in the main proceeding, and in particular, to the exclusion of any entitlement to contractual set-off that may have been asserted by a Respondent prior to the winding up of the Hastie Entities.

Issue 7a: Whether s 553C of the Act applies automatically with respect to the parties’ claims

98    The Respondents are each entitled to the benefit of the application of set-off pursuant to the principles set out in s 553C in the winding up of the Hastie Entities, and such entitlement is not dependent on any precondition of lodging a proof of debt in the winding up, or on the determination of the liquidator as to the application of s 553C set-off in respect of the relevant claims.

Issue 8: Whether respondents have proprietary interest in bank guarantee proceeds

99    By virtue of the various contractual instruments in relation to the bank guarantees, the Respondents were conferred proprietary interests in not only the physical bank guarantee instruments, but more importantly, the proceeds of the bank guarantees drawn down (once those proceeds were received by the Respondents).

Issues 9-10: Whether Hastie Entities had proprietary interests in relation to bank guarantees

100    Having regard to the various contractual instruments in relation to the bank guarantees, the Hastie Entities did not possess proprietary interests in relation to the bank guarantees that relevantly affect the proprietary interests of the Respondents in the proceeds of the bank guarantees drawn down. Any proprietary interests or rights of action that the Hastie Entities possess or once possessed as “choses in action” or “things in action” are of no consequence or utility for the purposes of the Hastie Entities’ claims against the Respondents.

Issue 11: Whether causal and transactional link between respondents’ credit of the bank guarantee proceeds and Hastie Entities’ debits

101    The Hastie Entities do not possess any proprietary interest in the bank guarantee proceeds by virtue of any “causal and transactional link” between the respondents’ credit of the bank guarantee proceeds drawn down and the corresponding “debit” arising from the Hastie Entities’ crystallised liabilities to the issuing banks pursuant to the facility agreements between the Hastie Entities and the banks.

Issues 12-13: Whether drawdown of bank guarantees voided by ss 437D or 468 of the Act

102    The Respondents’ drawdowns of the bank guarantees are not voided by either of ss 437D or 468 of the Act.

Issues 14-15: Whether respondents are entitled to retain the guarantee proceeds

103    The Respondents are not otherwise restrained from retaining the bank guarantee proceeds by virtue of ss 555 and 556 of the Act, or Chapter 5 of the Act generally, and so they are entitled to retain the bank guarantee proceeds subject to the final accounting of the respective claims of the Hastie Entities and the Respondents, following which it can be determined whether there are any surplus proceeds which the Respondents must account for and repay to the Hastie Entities.

Issue 16: Whether Hastie Entities’ Bank Guarantee Case statute-barred

104    The Hastie Entities’ claim against Baulderstone Qld Pty Ltd (the Thirtieth Respondent), as contained in the Amended Points of Claim against the Fourth and Thirtieth Respondents filed 26 February 2021, was made on that date and is pleaded pursuant to a deed of release. To the extent that this claim was made within the twelve-year limitation period applicable to a claim upon a deed or specialty, it is not statute-barred. To the extent that the other Hastie Entities’ claims were relevantly made on 14 November 2017 by way of Annexure 1 to the Concise Statement and the Originating Process filed on 14 November 2017, the claims are not statute-barred if those claims were made within the six-year limitation period applicable to each claim. To the extent that any other claims of the Hastie Entities were not made on 14 November 2017 but were made after that date (for example, by the filing of the Applicants’ Points of Claim on 13 July 2018), the claims are statute-barred unless those claims were made within the six-year limitation period applicable to each claim.

CONSIDERATION OF ISSUES CONCERNING LIMITATION OF ACTIONS

105    Before turning to the substantive issues in the proceeding, I will address the Respondents’ contentions that the Hastie Entities’ claims are statute-barred by reasons of various statutes of limitations (Issues 3 and 16 of the Common Issues).

106    The Applicants set out the relevant Receivables Case claim dates in their pleadings. These dates are the dates that I adopt for the purposes the determining the limitation issue in relation to the Receivables Case.

107    The Applicants also produced a schedule to their written closing submissions setting out the relevant Bank Guarantee Case claim dates. Some of these Bank Guarantee Case claim dates were in contention, but not relevantly for the purposes of the limitation issue raised by the Respondents. I proceed to determine the limitation of actions defences in relation to the Bank Guarantee Case by reference to this schedule. However, where there are dates in contention and recorded by each of the Respondents in their written submissions, having considered the underlying documents, I accept the Respondents’ dates. Therefore, if any issues arise as to the application of these reasons to the relevant guarantee claim dates, then the correct dates are those submitted by each Respondent. However, as I say, in my view and in light of my approach, whether any competing date is chosen, there is no difference in the application of the principles to apply.

108    The following principles apply to the determination of the limitation of actions defences raised by the Respondents. The relevant State Limitations Acts referred to by the parties and agreed are applicable by operation of ss  79 and 80 of the Judiciary Act 1903 (Cth). I interpolate also that whilst there was some mention by Counsel for the Applicants that there may well be a running account and so the limitation of actions defences could not be dealt with at this stage, there is no evidence (either admitted into evidence or sought to be admitted into evidence) or any suggestion in any of the material before me that there was any running account in relation to any of the relevant subcontracts. This is certainly not the way in which the Applicants have presented their case in the main proceeding or sought to prove the relevant debts.

109    As to the Bank Guarantee Case, the position is straight forward. The relevant accrual of the cause of action is the drawdown date or failure to return date pleaded by the Applicants, as the case may be. Even if the guarantee is a deed, as the Hastie Entities’ claims are not made pursuant to the guarantee, the limitation period is six years from the date of draw down or breach of the failure to return obligation.

110    Now, turning to the Receivables Case, the general principles are as follows. For breach of contract, which will include failure to abide by a contractual term or obligation to pay or perform, time accrues once that failure occurs. The same limitation period of six years applies unless any specific contract is a deed (where a limitation period of twelve or fifteen years applies, depending on the State jurisdiction). Generally, in an action for repayment of a debt, the action accrues on failure to comply with the valid demand for repayment, being at the relevant date for repayment. In the case of breach of multiple promises in one contract (eg periodical payments) a new cause of action arises every time a payment becomes payable and is not paid. In most cases this will not be difficult to determine. The difficulties encountered in a different context (like in Verwayen) do not arise in this main proceeding.

111    As to the receivables, the Applicants plead relevant dates on the basis that these can be proved, primarily by reference to books of accounts and reliance on s 1305 of the Act. For the purpose of determining the operation of the limitation of actions defences, the issue of whether or not the pre-conditions that may arise in relation to the obligation to pay need not arise for determination having regard to the basis of the Applicants’ own case. Where the claims are not statute barred, and will proceed to quantification, then it will may be necessary to determine whether these pre-conditions were satisfied. If the Applicants continue to rely on the books of accounts and s 1305, the onus will be on the Respondents to demonstrate the amounts are not owing and the prima facie position is displaced. The important point for this part of the main proceeding is that the parties have proceeded (largely by agreement) to treat the relevant dates pleaded by the Applicants as maintainable and the basis upon which they seek payment and relief.

112    The real issue of some debate is whether sufficient material facts were pleaded at the commencement of the main proceeding in relation to the various claims now pressed against each Respondent. This involves in the main proceeding a question of the ambit of the Originating Process filed on 14 November 2017. I interpolate that to the extent that claims are not made in the latest Points of Claim against each Respondent, and were made previously, they are treated as abandoned.

113    By order of the Court dated 29 January 2021, the Respondents had reserved to them the position to argue the relevant date for the operation of the relevant limitation period. Each Respondent took the opportunity to make submissions on this issue, essentially re-arguing the matters raised at an earlier interlocutory stage. I now confirm the approach and conclusions I reached in the interlocutory application relevant to these issues: see Hastie Interlocutory Decision especially at [20]-[22] and [41]-[57].

114    I stress that the claims made are limited to those referred to in Annexure 1 to the Concise Statement referred to in the Originating Process filed on 14 November 2017 by reference to the relevant Respondent and Hastie Entity. In my view, Annexure 1 to the Concise Statement does bring to the attention of each Respondent referred to therein the relevant key issues and key facts for determination, and the essential relief sought. However, this is limited to the various builder groups, project names and the reference to the particular debts and bank guarantees referred to in Annexure 1 to the Concise Statement. Therefore, if any claim is subsequently sought to be brought outside those referred to in Annexure 1 to the Concise Statement and is otherwise not within the six-year period from which the claim arises, the Applicants cannot rely upon the date of 14 November 2017 as the date of the commencement of that claim. For example, if a Hastie Entity’s debt claim arose as at 14 July 2012 (because a payment was asserted to be due and payable as at 14 July 2012), then if that claim was contained in the Applicants’ Points of Claim filed on 13 July 2018 but not in Annexure 1 to the Concise Statement, it would not be statute-barred.

115    On this basis, as long as the Applicants’ claim is within the scope of Annexure 1 to the Concise Statement, the limitation period only operates to prevent the Hastie Entities from pursuing the receivables and guarantee claims where the claim sought to be raised arose earlier than six years from 14 November 2017. The schedule relied upon by the Applicants and their pleading will indicate the relevant date for each claim for the parties to apply those principles. (I again note that the different dates raised by the Respondents make no difference to the application of the principles).

116    It will be apparent I do not accept the detailed arguments of the Respondents as to when the claims were later made by the Hastie Entities by way of amended concise statements or points of claim, as once it is concluded that they were sufficiently raised on 14 November 2017, the other various dates raised by the Respondents are of no consequence.

117    I need make mention of Baulderstone Qld Pty Ltd, who was only joined on 29 January 2021 pursuant to the following order:

1.    Pursuant to rule 9.05 of the Federal Court Rules 2011 (Cth) (Federal Court Rules), Baulderstone Qld Pty Ltd (Baulderstone Qld) be joined as a Respondent to these proceedings, noting that, pursuant to r 9.05(3) of the Federal Court Rules, the proceedings against Baulderstone Qld is taken to have started on the date of these orders.

118    Even in light of this order, the Hastie Entities’ pleaded claim against Baulderstone Qld Pty Ltd would not be statute barred to the extent that the claim (as pleaded) is an action upon a deed of release. This is because the relevant limitation period for an action upon a deed or specialty under the applicable State Limitation Act is twelve years.

119    I also note that an issue arose as to the applicable limitation period in relation to the Applicants’ claims against Grocon in relation to the subcontract referred to as the “Project A – Hastie Australia 161-163 Castlereagh Street” Deed. This is the only subcontract brought to the Court’s attention that was on its face made as a deed. There was some argument as to whether the claims made against Grocon in this main proceeding were made under the deed (in which case they may be subject to the twelve-year limitation period under the applicable State Limitation Act) or were merely property or debt claims (in which case the six-year limitation period would apply). In light of my reasons as to the Bank Guarantee Case which disposes of the issues relevant to Grocon in this liability trial, it is not necessary for me to determine this issue as to the applicable limitation period.

THE STATUTORY CONTEXT

120    I now turn to the various relevant provisions of Chapter 5 of the Corporations Act and to some aspects of their operation.

Chapter 5 of the Corporations Act

121    Chapter 5 of the Act implements the statutory scheme in relation to the external administration of companies. In particular issue in these proceedings is Part 5.3A in relation to the voluntary administration of a company, and the various Parts of Chapter 5 concerning the winding up of a company.

122    I shall set out the relevant provisions for these proceedings.

Voluntary administration under the Act

123    First, s 435A sets out the objects of Part 5.3A:

The object of this Part, and Schedule 2 to the extent that it relates to 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.

124    Section 435C provides that the administration of the company begins when an administrator is appointed.

125    Section 437D makes void dealings or transactions affecting the property of the company without the administrator’s consent or leave of the court. This section is central to the Bank Guarantee Case, so I set it out in full:

437D    Only administrator can deal with company’s property

(1)    This section applies where:

(a)    a company under administration purports to enter into; or

(b)    a person purports to enter into, on behalf of a company under administration;

a transaction or dealing affecting property of the company.

(2)    The transaction or dealing is void unless:

(a)    the administrator entered into it on the company’s behalf; or

(b)    the administrator consented to it in writing before it was entered into; or

(c)     it was entered into under an order of the Court.

(3)    Subsection (2) does not apply to a payment made:

(a)     by an Australian ADI out of an account kept by the company with the ADI; and

(b)     in good faith and in the ordinary course of the ADI’s banking business; and

(c)     after the administration began and on or before the day on which:

(i)     the administrator gives to the ADI (under subsection 450A(3) or otherwise) written notice of the appointment that began the administration; or

(ii)     the administrator complies with paragraph 450A(1)(b) in relation to that appointment;

whichever happens first.

(4)     Subsection (2) has effect subject to an order that the Court makes after the purported transaction or dealing.

…

126    Section 440B prevents the holders of various rights in relation to property of the company from exercising such rights without the administrator’s consent or leave of the court, relevantly providing:

440B    Restrictions on exercise of third party property rights

General rule

(1)     During the administration of a company, the restrictions set out in the table at the end of this section apply in relation to the exercise of the rights of a person (the third party) in property of the company, or other property used or occupied by, or in the possession of, the company, as set out in the table.

Note: The property of the company includes any PPSA retention of title property of the company (see section 435B).

…

127    Section 440D stays proceedings against the company or in relation to any of its property without the administrator’s consent or leave of the court, relevantly providing:

440D     Stay of proceedings

(1)    During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:

(a)     with the administrator’s written consent; or

(b)     with the leave of the Court and in accordance with such terms (if any) as the Court imposes.

128    Section 440F prevents enforcement processes against property of the company except with the leave of the court.

129    Division 7 of Part 5.3A sets out various provisions relevant to the rights of parties holding security interests to enforce or take action against property of the company, despite ss 440B and 440F. For example, s 441A concerns the rights of secured parties who have a security interest in respect of the “whole, or substantially the whole, of the property of a company under administration”, and s 441B concerns the rights of secured parties who commence enforcement of their security interests before the administration commences.

130    Section 447A grants the Court general powers to make orders as it think appropriate about how Pt 5.3A is to operate in relation to a particular company.

131    Section 447B grants power to the Court to make orders to protect the interests of a company’s creditors while the company is under administration.

Winding up under the Act

132    Chapter 5 provides for various forms of winding up of a company. Relevantly to these proceedings:

(a)    Pt 5.4 relates to ‘Winding up in insolvency’.

(b)    Pt 5.4B relates to ‘Winding up in insolvency or by the Court’. It contains various provisions relevant to those forms of winding up.

(c)    Pt 5.5 relates to ‘Voluntary winding up’. Each of the liquidations of the Hastie Entities occurred by reason of a creditors’ voluntary winding up. It is to be noted that a company may be insolvent, yet enter liquidation by way of a voluntary winding up, rather than an order of the Court that the company be wound up in insolvency.

(d)    Pt 5.6 relates to ‘Winding up generally’.

133    Although the Hastie Entities have been voluntarily wound up, certain provisions in Pt 5.4 and Pt 5.4B apply to a voluntary winding up by reason of s 506(1)(b), which states that a liquidator in a voluntary winding up may “exercise any of the powers that this Act confers on a liquidator in a winding up in insolvency or by the Court”.

134    It is not necessary to set the provisions out in full, but the effect of s 513A to 513C is that where a voluntary administration is in effect prior to a winding up ordered by the Court or a voluntary winding up, the winding up is taken to have commenced on the day on which the voluntary administration began.

135    Section 474 of the Act concerns the custody and vesting of a company’s property, providing:

(1)     If a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company has been appointed:

(a)     in a case in which a liquidator or provisional liquidator has been appointed — the liquidator or provisional liquidator must take into his or her custody, or under his or her control, all the property which is, or which appears to be, property of the company; or

…

Note:     Section 465 extends the meaning of the property of the company to include PPSA retention of title property, if the security interest in the property has vested in the company in certain situations.

(2)     The Court may, on the application of the liquidator, by order direct that all or any part of the property of the company vests in the liquidator and thereupon the property to which the order relates vests accordingly and the liquidator may, after giving such indemnity (if any) as the Court directs, bring, or may defend, any action or other legal proceeding that relates to that property or that it is necessary to bring or defend for the purpose of effectually winding up the company and recovering its property.

136    It has not been said that any relevant vesting order under s 474(2) has been made in respect of any property of a Hastie Entity.

137    Section 478 deals with the liquidators duty to collect and apply the company’s property in discharging the company’s liabilities or debts, providing:

(1)     As soon as practicable after the Court orders that a company be wound up, the liquidator must:

(a)    cause the company’s property to be collected and applied in discharging the company’s liabilities…

138    Section 506 sets out the central powers and obligations of a liquidator in a voluntary winding up, relevantly providing:

(1)     The liquidator may:

…

(b)    exercise any of the powers that this Act confers on a liquidator in a winding up in insolvency or by the Court; or

(e)     exercise the power of the Court of fixing a time within which debts and claims must be proved;

…

(3)     The liquidator must pay the debts of the company and adjust the rights of the contributories among themselves.

139    Pursuant to s 506(1)(b) therefore, a liquidator in a voluntary winding up may exercise the powers of a liquidator under s 477, including the following (emphasis added in relation to the property of the company):

(1)    Subject to this section, a liquidator of a company may:

(a)     carry on the business of the company so far as is, in the opinion of the liquidator, required for the beneficial disposal or winding up of that business; and

(b)    subject to the provisions of section 556, pay any class of creditors in full; and

(c)    make any compromise or arrangement with creditors or persons claiming to be creditors or having or alleging that they have any claim (present or future, certain or contingent, ascertained or sounding only in damages) against the company or whereby the company may be rendered liable; and

(d)    compromise any calls, liabilities to calls, debts, liabilities capable of resulting in debts and any claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting or supposed to subsist between the company and a contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the property or the winding up of the company, on such terms as are agreed, and take any security for the discharge of, and give a complete discharge in respect of, any such call, debt, liability or claim.

(2)    Subject to this section, a liquidator of a company may:

(a)    bring or defend any legal proceeding in the name and on behalf of the company; and

…

(c)    sell or otherwise dispose of, in any manner, all or any part of the property of the company; and

…

(m)    do all such other things as are necessary for winding up the affairs of the company and distributing its property.

…

(6)    Subject to this Part, the liquidator must use his or her own discretion in the management of affairs and property of the company and the distribution of its property.

140    Section 500 deals with limitations upon proceedings or enforcement against a company in voluntary liquidation, providing:

500    Execution and civil proceedings

(1)     Any attachment, sequestration, distress or execution put in force against the property of the company after the passing of the resolution for voluntary winding up is void.

(2)     After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.

(3)     The Court may require any contributory, trustee, receiver, banker, agent, officer or employee of the company to pay, deliver, convey, surrender or transfer forthwith or within such time as the Court directs to the liquidator any money, property of the company or books in his, her or its hands to which the company is prima facie entitled.

141    Section 501 gives effect to the principle of equal distribution between creditors, providing:

501     Distribution of property of company

Subject to the provisions of this Act as to preferential payments, the property of a company must, on its winding up, be applied in satisfaction of its liabilities equally and, subject to that application, must, unless the company’s constitution otherwise provides, be distributed among the members according to their rights and interests in the company.

142    Section 553(1) provides for the debts and claims that may be admitted to proof against a company in liquidation:

Subject to this Division and Division 8, 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.

143    Section 553C provides for mutual credit and set-off in respect of companies in liquidation:

(1)     Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:

(a)    an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and

(b)    the sum due from the one party is to be set off against any sum due from the other party; and

(c)    only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.

(2)     A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.

144    Section 555 sets out the pari passu principle, providing:

Except as otherwise provided by this Act, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they must be paid proportionately.

145    Of similar effect to s 437D applying to voluntary administrations, s 468 relates to the voiding of dispositions during a winding up in insolvency or by the Court. Like s 437D, s 468 is most relevant to the Bank Guarantee Case, and also informed the Applicants’ commencement of the winding up proceeding. I therefore set out the relevant parts of s 468 as at the time of these reasons:

468     Avoidance of dispositions of property, attachments etc.

(1)     Any disposition of property of the company, other than an exempt disposition, made after the commencement of the winding up by the Court is, unless the Court otherwise orders, void.

(2)    In subsection (1), exempt disposition, in relation to a company that has commenced to be wound up by the Court, means:

(a)     a disposition made by the liquidator, or by a provisional liquidator, of the company pursuant to a power conferred on him or her by:

(i)     this Act; or

(ii)     rules of the Court that appointed him or her; or

(iii)     an order of the Court; or

(aa)     a disposition made in good faith by, or with the consent of, an administrator of the company; or

…

(b)     a payment of money by an Australian ADI out of an account maintained by the company with the Australian ADI, being a payment made by the Australian ADI:

(i)     on or before the day on which the Court makes the order for the winding up of the company; and

(ii)     in good faith and in the ordinary course of the banking business of the Australian ADI.

(3)     Notwithstanding subsection (1), the Court may, where an application for winding up has been filed but a winding up order has not been made, by order:

(a)     validate the making, after the filing of the application, of a disposition of property of the company; or

(b)     permit the business of the company or a portion of the business of the company to be carried on, and such acts as are incidental to the carrying on of the business or portion of the business to be done, during the period before a winding up order (if any) is made;

on such terms as it thinks fit.

(4)     Any attachment, sequestration, distress or execution put in force against the property of the company after the commencement of the winding up by the Court is void.

146    I also refer to Division 2 of Part 5.7B of the Act concerning voidable transactions, such as unfair preferences. These provisions were not relied upon by the Applicants and in fact were referred to by the Respondents as a matter of context. Some of the Respondents assert that the proper part of Chapter 5 of the Act to be applied by the Applicants ought to have been this division, and that it is relevant that no application has been made by the Liquidator in respect of a voidable transaction pursuant to s 588FE, which would be out of time if made now. I note the voidable transaction regime merely as statutory context, as it is not necessary for me to make any determinations in respect of that regime.

DISCUSSION OF THE APPLICANTS’ OVERARCHING SUBMISSIONS REGARDING CHAPTER 5 OF THE CORPORATIONS ACT

147    The Applicants’ Receivables Case and Bank Guarantee Case are each underpinned by the Applicants’ characterisation of the statutory scheme implemented by Chapter 5 of the Act, and in particular the statutory scheme in relation to the winding up of a company. In this section, I set out the Applicants’ overarching submissions regarding Chapter 5 of the Act, pausing to make comments where appropriate.

148    I set out the Applicants’ arguments in some detail because a number of different themes to the operation of Chapter 5 of the Act were called in aid by Counsel for the Applicants, all said to combine in support of the various contentions underlying the Applicants’ ultimate claim for recovery of monies into the hands of the Liquidator to be distributed according to the Act.

149    It is useful first to set out the Applicants’ submissions regarding Chapter 5 of the Act presented in summary form in its opening submissions (although as I have alluded to, the submissions were refined over the course of the trial):

(a)    The scope, structure, and provisions of Chapter 5 of the Act evince an intention to create a comprehensive regime for dealing with corporate insolvency. Central to the statutory scheme are core principles which have important ramifications for the administration and winding up of the Hastie Entities.

(b)    Persons asserting debts payable by, or claims against, the company as at the date administrators are appointed, are creditors. Creditors may prove in a DOCA or in the liquidation, but not otherwise. When a creditors’ voluntary winding up commences, each creditor is denied the right that the creditor would otherwise have had to sue the company to recover the relevant debt. The creditor obtains instead a right to participate in a distribution in the winding up.

(c)    There are only secured and unsecured creditors. There is no third category of unsecured creditors with special or additional rights of set-off because they happen to be holding assets or potential assets of a company in winding up.

(d)    All debts payable by and all claims against the company are admissible to proof against the company in accordance with s 553 of the Act. The section speaks of “all debts or claims the circumstances giving rise to which occurred before the relevant date”. This reflects a policy that the affairs of the insolvent company are to be resolved once and for all.

(e)    The liquidator has a duty to bring in the property of the company. If such property is insufficient to meet the debts and claims in full, the available funds must be paid to creditors proportionately: this is the pari passu principle. This is intended to achieve justice between all creditors, subject to any statutory priorities.

(f)    The position of creditors is protected by the requirement that the liquidator is to act quasi-judicially in admitting to proof debts and claims alleged by its creditors to be owed by the company.

150    As to Part 5.3A of the Act in relation to the voluntary administration of a company, the Applicants refer to the following provisions, which it is submitted evince an intention to deal comprehensively with corporate insolvency:

(a)    “Secured creditor” is defined by s 51E (see also s 9) to mean “a creditor of the corporation, if the debt owing to the creditor is secured by a security interest”. In turn, under s 51A, “security interest” means “(a) a PPSA security interest; or (b) a charge, lien or pledge”. “Unsecured creditor” is not defined.

(b)    Section 435A sets out the objects of Part 5.3A.

(c)    Section 435C provides that the administration of the company begins when an administrator is appointed.

(d)    Section 437D makes void dealings or transactions affecting the property of the company without the administrator’s consent or leave of the court. This provision is considered in more detail as part of the Bank Guarantee Case.

(e)    Section 440B prevents the holders of various rights in relation to property of the company from exercising such rights without the administrator’s consent or leave of the court.

(f)    Section 440D stays proceedings against the company or in relation to any of its property without the administrator’s consent or leave of the court.

(g)    Section 440F prevents enforcement processes against property of the company except with the leave of the court.

(h)    Division 7 of Part 5.3A sets out various provisions relevant to the rights of parties holding security interests to enforce or take action against property of the company.

(i)    Section 447B grants power to the court to make orders to protect the interests of a company’s creditors while the company is under administration.

151    From the time of the appointment of the administrators, all claims for damages or claims for retention of security, being claims within s 553, were subject to Pt 5.3A: Brash Holdings Ltd (administrator appointed) v Katile Pty Ltd [1996] 1 VR 24, 31-32. The Applicants submit that where administrators have been appointed, the “claim” of a builder who is holding back payment of monies due (receivables) to a subcontractor in administration on the basis of alleged contractual damages cannot proceed to a court. That “claim” will merge in either a DOCA or in the proof of debt contemplated and provided for in s 553.

152    It is submitted that Pt 5.3A is concerned with the protection of creditors, who may be secured or unsecured, and there is no “third way”. A secured creditor has the ability to appoint a receiver and gains priority. An unsecured creditor must prove in the winding up (or a DOCA). There is no third category of those with self-proclaimed contractual rights to self-help. There are no contractual rights to self-help accommodated by Pt 5.3A, save for those enshrined in a PPSA security interest (as defined under the Act). In dealing with the respective positions of secured and unsecured creditors, Parliament intended to cover the field in relation to those persons having rights against the company during the period of voluntary administration. This can also be seen in the broad approach in relation to “claims” in the context of a winding up.

153    I interpolate at this stage to note that the Applicants’ references to “self-help” are to the Respondents’ call and draw downs on the bank guarantees in their possession, and to the Respondents’ application of set-off principles as against their debts to the Hastie Entities. As will be explained later in my reasons, the Respondents’ exercise of their rights as against third party banks by way of bank guarantees entered into with those banks should not be mischaracterised as an illegitimate form of “self-help” or enforcement against the Hastie Entities. While it is true that the Respondents’ exercise of their rights has an ultimate effect on the financial position of the Hastie Entities because of the financial arrangements they have separately entered into with those banks, it is important to recognise that, as a matter of both form and substance, the Respondents’ rights enforced under the bank guarantees are as against the issuing banks. In that sense, the Respondents have no need to access the statutory regime of insolvency in relation to the Hastie Entities. They do not seek to be recognised as “secured creditors” or “unsecured creditors’ of the Hastie Entities, to enforce any security interests or contractual rights against the Hastie Entities, or to make any “claims” against the Hastie Entities in their liquidations. To that extent, reliance on a bank guarantee (so called) is similar to a creditor’s reliance on any other third party guarantee to satisfy its claims. Like with any third party guarantee, part of the point of the mechanism of entering into the bank guarantee arrangements with the banks is to avoid entirely the situation of being a creditor of an insolvent company. Instead, the beneficiary is a contingent creditor of the bank, which in turn enters into separate but correlative arrangements with the Hastie Entity, and so the bank is a contingent creditor of the Hastie Entity. The other benefit of an unconditional bank guarantee is to allow the beneficiary to receive its claimed proceeds in the first instance, so that the onus is then on the person in respect of which the bank guarantee is issued (here, the relevant Hastie Entity) to bring any claim against the beneficiary to account for any money that is alleged the beneficiary rightfully owes to it. These matters will be dealt with more fully later in these reasons as to the Bank Guarantee Case.

154    The Applicants make the following more detailed submissions on the statutory scheme established by Chapter 5 of the Act in relation to the winding up of a company.

    In summary, Chapter 5 provides a detailed and comprehensive statutory regime dealing with all aspects of corporate insolvency. Significantly, other than admission to proof under Pt 5.6, no other options for dealing with “debts” and “claims” of unsecured creditors are specified or even contemplated.

    The central role of the liquidator in holding the assets of an insolvent company and applying them against the liabilities of the company was explained by Dixon J in Hiley v The Peoples Prudential Insurance Company (in liq) (1938) 60 CLR 468 at 496:

…the assets of the Company, including the choses in action or claims of the Company, become a fund in the hands of a liquidator, and the liabilities of the Company are converted into claims upon that fund.

    Consistent with the property of the company being a fund available for creditors in the hands of the liquidator, no proceedings or enforcement action can be taken against the company once it is in winding up, pursuant to s 500 of the Act.

    The effect of s 500 of the Act is summarised by Barrett J in Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd [2010] NSWSC 1369; (2010) 80 ACSR 670 at [35]:

When a creditors voluntary winding up commences, each creditor is denied the right that the creditor would otherwise have had to sue the company to recover the relevant debt. This is the effect of s 500(2) noted above. The creditor obtains instead a right to participate in a distribution in the winding up…

    The fundamental tenet of winding up is that the company’s insolvency is dealt with on a collective basis, and so s 501 of the Act relevantly provides:

Subject to the provisions of this Act as to preferential payments, the property of a company must, on its winding up, be applied in satisfaction of its liabilities equally… [Applicants’ emphasis]

    The Applicants say that the Respondents are subject to this collective approach to all unsecured creditors, which came into effect on the Appointment Date (the appointment date of the voluntary administrators being the “section 513C day” on which the winding up is taken to have commenced, pursuant to s 513C(b) of the Act). Sections 513A to 513C reflect an intention to preserve the position of the company from the date of the voluntary administration, in the event that the company is wound up. Far from being an easy or obvious legislative choice, the concept of the “section 513C day” reflects a deliberate policy choice to extend the consequences of winding up to companies in voluntary administration in order to protect the property of the company that may be realised for the benefit of creditors.

    Returning to the role of the liquidator in the statutory scheme, the liquidator is responsible for getting in the fund to be made available to the creditors of the company, as per s 474 of the Act. Plainly, the section envisages that the liquidator will get in all the property of the company (including funds to which the company is or may be entitled). To the extent that a party disputes that such property is in fact property of the company, it is a matter to be assessed by the liquidator, subject to the rights of action and review provided for under the Act. This power is necessarily qualified by the corresponding obligation of the liquidator to act quasi-judicially in admitting to proof debts and claims owed by the company. Moreover, any interests that third parties may have in the property of the company are retained.

    Relatedly, s 530A of the Act requires officers of the company to help the liquidator and to deliver to the liquidator the company’s books and records. The centrality of the liquidator to the getting in of the assets is also informed by its obligation under s 506(3) of the Act to pay the debts of the company (which is similar to the obligation in s 478(1)(a)).

    This centrality informs the mechanisms under Div 6 of Pt 5.6 relating to “Proof and ranking of claims”. The effect of s 553 is that all possible claims which could be made against the company in consequence of its dealings prior to the commencement of the winding up would be admissible to proof in that winding up.

    This is because s 553 reflects a statutory intention to capture all extant claims against the company as at the relevant date, and the “relevant date” in s 553 is intended to give the section retroactive effect. The Applicants rely on the following dicta of Hayne J in Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160 (Sons of Gwalia) at [172] (Applicant’s emphasis):

In construing the temporal limit that is imposed by s 553, it is important to recognise the generality of other expressions used in s 553 in defining what debts and claims are to be admissible to proof. The section speaks of “all debts payable by, and all claims against, the company”. It amplifies those expressions by the parenthetical reference: “present or future, certain or contingent, ascertained or sounding only in damages”. If the words of the section were not wholly sufficient (as they are) to indicate an intention to define provable claims very widely, the Report of the Australian Law Reform Commission on the General Insolvency Inquiry (the Harmer Report), read with the Explanatory Memorandum for the Bill that became the 1992 Act, puts the point beyond any doubt. The Harmer Report identified a basic aim of insolvency laws as being “to deal comprehensively with all of the debts and liabilities of the insolvent” and said that, “[i]n the case of a company, the aim is to deal with all the claims against a company so that its affairs can be fully wound up or so that it can resume trading” (emphasis added). The Harmer Report concluded that “[t]he categories of claims which are admissible should be as wide as possible so that the financial affairs of the insolvent are dealt with comprehensively”. Otherwise, as the Harmer Report pointed out, “if the creditors are unable to make their claims in the insolvency, they are unable to recover at all (unless they have a basis for action against either directors of the company or a guarantor of the company’s debts or unless the winding up is stayed)”. The Explanatory Memorandum for the Bill that became the 1992 Act said that the reforms embodied in the new provisions of ss 553-553E “reflect[ed] the recommendations of the Harmer Report”.

    The Applicants assert that the second bolded passage expresses the logic of collective enforcement: if creditors are free to claim outside the insolvency (for example, by withholding property of the company), why would anyone elect to recover pari passu? Although s 553 speaks of claims being “admissible” to proof, the context is only voluntary insofar as a creditor is not compelled to bring a claim. An unsecured creditor who seeks to claim against the company can only claim through the procedure in Chapter 5.

155    I again interpolate to emphasise that the debts payable by the company and claims against the company being “admissible to proof against the company” does not imply a mandatory mechanism compelling a creditor to prove in the company’s winding up. Justice Hayne’s analysis speaks to why a wide reading of provable claims is beneficial for creditors, but as the words of the Harmer Report quoted by Hayne J above and bolded suggest, a creditor may choose not to make any claim in insolvency, as they may have a basis for action against a third party.

156    Further, the Applicants refer to the following passage of Campbell J in Re Jay-O-Bees Pty Ltd (in liq) [2004] NSWSC 818; (2004) 50 ACSR 565 at [89] (Applicants’ emphasis):

Construction of s 553 needs to be carried out bearing in mind its purpose, as a means of achieving a pari passu distribution of available assets among those who are really creditors of the company. In Wight v Eckhardt Marine GmbH [2004] 1 AC 147 at 155–6, [26]–[29]; Lord Hoffmann said:

[26]    It is first necessary to remember that a winding up order is not the equivalent of a judgment against the company which converts the creditor’s claim into something juridically different, like a judgment debt. Winding up is, as Brightman LJ said in In re Lines Bros Ltd [1983] Ch 1, 20, “a process of collective enforcement of debts”. The creditor who petitions for a winding up is “not engaged in proceedings to establish the company’s liability or the quantum of the liability (although liability and quantum may be put in issue) but to enforce the liability”.

[27]     The winding up leaves the debts of the creditors untouched. It only affects the way in which they can be enforced. When the order is made, ordinary proceedings against the company are stayed (although the stay can be enforced only against creditors subject to the personal jurisdiction of the court). The creditors are confined to a collective enforcement procedure that results in pari passu distribution of the company’s assets. The winding up does not either create new substantive rights in the creditors or destroy the old ones. Their debts, if they are owing, remain debts throughout. They are discharged by the winding up only to the extent that they are paid out of dividends. But when the process of distribution is complete, there are no further assets against which they can be enforced. There is no equivalent of the discharge of a personal bankrupt which extinguishes his debts. When the company is dissolved, there is no longer an entity which the creditor can sue. But even then, discovery of an asset can result in the company being restored for the process to continue.

[28]    Secondly, as Oliver J explained in the Dynamics Corpn case [1976] 1 WLR 757, 764, the purpose of the rule that debts are valued at the date of winding up is to give effect to the principle of pari passu distribution. It is a principle of fairness between creditors:

“It is only in this way that a rateable, or pari passu, distribution of the available property can be achieved, and it is, as I see it, axiomatic that the claims of creditors amongst whom the division is to be effected must all be crystallised at the same date ... for otherwise one is not comparing like with like ...”

157    Again, the reference to creditors being “confined to a collective enforcement procedure” is in the context of creditors who wish to make claims against the company. There is no basis to suggest that a creditor is not permitted to have its claims satisfied by having recourse to a third party.

158    The Applicants then say that as and from the Appointment Date, each Hastie Entity held “the property of the company” on trust for the creditors of that Hastie Entity in accordance with the Act: Ayerst (Inspector of Taxes) v C & K (Construction) Ltd [1976] AC 167, 176-177 (Lord Diplock); Cambridge Gas Transportation Corp v Official Committee of Unsecured Creditors of Navigator Holdings plc [2007] 1 AC 508 at [14] (Lord Hoffman).

159    This submission rests on an old fallacy, which Gummow J exposed in Sons of Gwalia at [37] by reference to earlier authority in the High Court: Federal Commissioner of Taxation v Linter Textiles Australia Ltd (In liq) (2005) 220 CLR 592 (Linter) at 611 [48]-[49] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ, which approved Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation (1970) 125 CLR 52 at 69–70 per Menzies J (emphasis added):

Excessive significance should not be attributed to statements in nineteenth century British cases, decided at a time of endeavours to “flesh out” the developing body of statute law [on companies] by use of principles derived from a range of sources in the general law. These sources included the law of agency, partnership, bankruptcy, and trusts. It later was recognised that some of those endeavours miscarried. One was the attribution to directors of the character of trustees of the assets of the company, and another the treatment of a company in liquidation as trustee of its assets for distribution among creditors.

160    As the High Court said in Linter, the British cases cited by the Applicants must be understood in context. Lord Diplock at 180 in fact clarifies that the references in the jurisprudence to a company in liquidation or a liquidator as “trustee” was an analogy to describe the effect of the insolvency statute in operation:

All that was intended to be conveyed by the use of the expression “trust property” and “trust” in these and subsequent cases … was that the effect of the statute was to give to the property of a company in liquidation that essential characteristic which distinguished trust property from other property, viz., that it could not be used or disposed of by the legal owner for his own benefit, but must be used or disposed of for the benefit of other persons.

161    On settled principles of law in Australia, the Hastie Entities are not trustees of property for creditors, and nor is the Liquidator. The correct position is as set out by the High Court in Linter at [54] (quoting Ford and Austin’s Principles of Corporations Law). That textbook has since been updated to incorporate the reasons in Linter, stating as follows (R Austin et al, Ford, Austin and Ramsay’s Principles of Corporations Law, 17th ed, 2018 at [27.120.15]):

Whether the company is insolvent or solvent, the company holds its property beneficially but subject to the statutory scheme of liquidation under which the liquidator is to pay creditors and dispose of any surplus as directed by the company’s constitution. The change in control of the affairs of the company has no impact upon its beneficial ownership of its assets: Federal Commissioner of Taxation v Linter Textiles Australia Ltd (in liq), above, at [54]. Unsecured creditors and contributories have the benefit of the liquidator's administration of the company's estate. Their special interest is to some extent like that of objects of a discretionary trust; they have a right to have a fund of assets protected and properly administered…

162    The Applicants’ submissions continue in relation to the pari passu principle as follows:

    The collective approach to the distribution amongst unsecured creditors of the assets of the company is emphasised by s 555:

Except as otherwise provided by this Act, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they must be paid proportionately.

    The Respondents do not assert that they are entitled to priority payments under s 556 of the Act ahead of other unsecured creditors, including employees.

    The pari passu principle legislated in ss 501 and 555 of the Act and the freezing at the commencement date of the winding up of the claims against the company (ss 553 and 554) are central to the statutory scheme directed to ensuring that the company’s assets are distributed equally amongst the unsecured creditors. The Act prevents creditors who “get in first” being able to have their claims being met in full whilst leaving others with nothing.

    In Morton as Liquidator of MJ Woodman Electrical Contractors Pty Ltd v Metal Manufactures Pty Limited [2021] FCAFC 228; (2021) 402 ALR 387 (Morton), Allsop CJ referred to the purposes of the pari passu principle:

The primary objective is the securing of equality of distribution amongst creditors of the same class; with the consequential purpose of deterring the “race to the courthouse” (put by the Supreme Court: “to dismember the debtor during his slide into bankruptcy”) and thereby enhancing the prospect of debtors trading out of difficulty. [Applicant’s emphasis]

163    At this stage of the discussion, it is worth recalling the historical basis in equity of the pari passu principle. Chief Justice Allsop referred to this historical basis in Morton at [28]-[30] and [53] (with Middleton and Derrington JJ agreeing), and to the fact that it is subject to other principles of equity (such as mutual set-off) and supported by the statutory regime in respect of voidable transactions. It is in this context that the above quote relied upon by the Applicants fits:

[28]    Thirdly, the conceptions of mutual set-off and pari passu distribution are both founded in equity. The former is often expressed as an exception to the latter (see Goode RM Principles of Corporate Insolvency Law (2nd ed, Sweet & Maxwell, 1997) at 153–154 and 172–173). At the foundation of each is equity’s concern with justice and fairness. In relation to the former, the injustice to the creditor of not recognising genuine mutual debts and credits and mutual dealings between the creditor and the debtor in ascertaining the respective rights and obligations of the insolvent debtor and the creditor. In relation to the latter, equity is concerned with equality of distribution, as a reflection of the equitable maxim “Equity is equality”: see Akers as a joint foreign representative of Saad Investments Company Limited (in Official Liquidation) v Deputy Commissioner of Taxation [2014] FCAFC 57; 223 FCR 57 at 41 [135]. The two manifestations of equity’s concern with fairness are directed to two different, but related, aspects of the insolvent administration: fairness in the ascertainment of the assets of and claims upon the estate; and fairness in the equal access to that estate amongst ranking unsecured creditors for their ascertained or accepted claims.

[29]    Fourthly, the statutory purpose of the avoidance or conclusion of voidableness of preferences, and of the preference action is the just remedying of dislocation of the equality of creditors reflected in pari passu distribution. The purpose was expressed by Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ in G & M Aldridge Pty Ltd v Walsh [2001] HCA 27; 203 CLR 662 at 674–675 [29] and [30] in a two-fold form, drawn in part by adoption of what had been said by the United States Supreme Court in Union Bank v Wolas 502 US 151 (1991) at 161: The primary objective is the securing of equality of distribution amongst creditors of the same class; with the consequential purpose of deterring the “race to the courthouse” (put by the Supreme Court: “to dismember the debtor during his slide into bankruptcy”) and thereby enhancing the prospect of debtors trading out of difficulty.

[30]    Fifthly, the object of the statutory set-off was expressed by Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ in Gye v McIntyre [1991] HCA 60; 171 CLR 609 at 618–619, being to prevent injustice and to do substantial justice where “a debt is really due from the bankrupt to the debtor to his estate”. Provisions such as s 553C (s 86 of the 1966 Act) are to be given “the widest possible scope”: Day & Dent Constructions v North Australian Properties Pty Ltd (Provisional Liquidator Appointed) [1982] HCA 20; 150 CLR 85 at 108 and Gye v McIntyre at 619, as long as it be recognised that that width and the “substantial justice” is confined within the limits of genuine mutuality as a matter of substance: Day & Dent Constructions at 95 and Gye v McIntyre at 619. The construction and application of set-off provisions such as s 553C is to be approached in the context of these underlying values that is reflected in the binding legal principles of the authorities.

…

[53]    The relevant right or equity and the relevant obligation which later grow into a claim or debt must be in existence as at the relevant date. The right or equity or obligation may be absolute or contingent. The call by Dixon J to have regard to the equitable or beneficial interest reflects the equitable character of the conception of the set-off embodied in the statutory provision. Equity long had a role in the administration and operation of bankruptcy and in aid and furtherance of the equitable conceptions and values that underpinned insolvency and bankruptcy: Holdsworth W, A History of English Law (2nd ed, Methuen and Co Sweet and Maxwell, 1971) volume 1 at 470–473, volume 8 at 241–244, and volume 12 at 281–283 and 541–542; May HW and Edwards WD (ed), The Law of Fraudulent and Voluntary Conveyances (3rd ed, Steven and Haynes, 1908) at 306–307; In re Mouat; Kingston Cotton Mills Co v Mouat [1899] 1 Ch 831.

164    In addition to the principles referred to above, it is also relevant to note other aspects of the statutory regime that may be regarded as relating to, affecting, furthering or limiting the pari passu principle. For example, the pari passu principle is subject to the statutory priority payment regime under s 556 of the Act. I also note the so-called “ipso facto regime” under the Act (which renders unenforceable certain “ipso facto” clauses which purport to trigger termination rights upon an insolvency event, regardless of continuing performance by the insolvent counterparty). That regime does not apply to the subcontracts in this proceeding, which were entered into prior to 1 July 2018 (the relevant commencement date under the Treasury Laws Amendment (2017 Enterprise Incentives No 2) Act 2017 (Cth)). Although it was not relied upon by the Applicants, it was referred to by Multiplex as relevant context. To the extent that such a regime relates to the prevention of the “race to the courthouse” and the “dismemberment of the debtor” by strict reliance on contractual rights upon insolvency, it may be regarded as another aspect of the statutory regime relating to the pari passu principle. The fact that it does not apply to the relevant subcontracts does not necessarily support the Applicants’ invocation of an expansionary pari passu principle to restrain the Respondents’ reliance on their contractual rights after the Appointment Date in this proceeding. It in fact may indicate that such a policy concern is now internalised within the Act, and there is no need for the pari passu principle to play any type of “gap-filling” role in this respect.

165    I will return later to consideration of the pari passu principle in circumstances where unsecured creditors rely on third party guarantees.

166    The Applicants submit that the collective enforcement procedure and the pari passu principle implemented by Chapter 5 of the Act is of statutory force and cannot be contracted out of by the parties in this proceeding. In particular, the Applicants rely on British Eagle International Airlines Ltd v Compagnie Nationale Air France [1975] 1 WLR 758 (British Eagle) at 780-781 in the House of Lords, where Lord Cross in the majority concluded as follows in respect of certain “clearing house arrangements” said to be inconsistent with the liquidation mechanism established by the insolvency statute:

The respondents argue that the position which, according to them, the clearing house creditors have achieved, though it may be anomalous and unfair to the general body of unsecured creditors, is not forbidden by any provision in the Companies Act, and that the power of the court to go behind agreements, the results of which are repugnant to our insolvency legislation, is confined to cases in which the parties' dominant purpose was to evade its operation. I cannot accept this argument… [W]hat the respondents are saying here is that the parties to the “clearing house” arrangements by agreeing that simple contract debts are to be satisfied in a particular way have succeeded in “contracting out” of the provisions contained in section 302 for the payment of unsecured debts “pari passu.” In such a context it is to my mind irrelevant that the parties to the “clearing house” arrangements had good business reasons for entering into them and did not direct their minds to the question how the arrangements might be affected by the insolvency of one or more of the parties. Such a “contracting out” must, to my mind, be contrary to public policy. The question is, in essence, whether what was called in argument the “mini liquidation” flowing from the clearing house arrangements is to yield to or to prevail over the general liquidation. I cannot doubt, that on principle the rules of the general liquidation should prevail.

167    The Applicants also rely on Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 340 per Brennan and Dawson JJ, citing In re Exchange Securities Ltd (in liq) [1988] Ch 46 at 59-60 in support of the submission that an estoppel against a company in liquidation which would defeat the distribution of assets among the true creditors of the company is similarly unenforceable against the liquidator of the company.

168    The major premise of these submissions is establishing that there has been a relevant inconsistency with the statutory scheme of Chapter 5 of the Act, and in particular, a specific provision of that Act. As a majority of the High Court stated in International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 (IATA) at [76] the critical point in British Eagle was that there was “property” of the company to which the relevant English pari passu provision applied, and “a contractual provision negating that outcome could not prevail against the terms of the statute”.

169    It is accepted that if the Act establishes that particular property of the company is to be dealt with in a certain way, then a contrary contractual right against the company or an estoppel similarly of contrary effect would be unenforceable. However, the burden is on the Applicants to show that the Act indeed operates in a certain way that is contrary to the contracts entered into by the Hastie Entities in this proceeding.

170    The Applicants then turn to the Respondents’ claims against the Hastie Entities:

    Section 554A of the Act confers power on the liquidator to admit the claims of each of the Respondents as claims that did not bear a certain value as at the Appointment Date (that is, the value of the claims is uncertain). The liquidator is the proper party tasked by the Act to determine the value of each Respondent’s claim and to make the calculation directed by s 553C as to mutual credits and set-off rights. The liquidator’s role in the proof process is elaborated in the Corporations Regulations 2001 (Cth) (‘Regulations’) at regs 5.6.47 to 5.6.54.

    The Respondents are unsecured creditors of the Hastie Entities and each holds one or more of the following property that is or appears to be property of a Hastie Entity recoverable for the benefit of creditors of that company:

(a)    book debts recorded in the debtor’s ledger for each Hastie Entity (ie, the receivables);

(b)    proceeds of bank guarantees drawn down in the weeks following the Appointment Date and, in some cases, much later, after the commencement of the winding up;

(c)    held bank guarantees which, if called upon, will increase the liabilities of the Hastie Entities.

171    I note at this point that the characterisation of the rights of the Hastie Entities in regards to its receivables and in relation to the bank guarantees as “property of the company” are significant for the Applicants’ case in two main ways: first, to establish the case within the scope of the statutory scheme and the provisions of the Act relating to the “property of the company” (eg ss 437D, 440B, 440D, 468, 474 and 500), and second, to argue that the Hastie Entities’ proprietary rights should be favoured in priority to any proprietary rights of the Respondents in this case.

172    The Applicants’ submissions then turn to the procedural moratoria under the Act:

    Prior to winding up, the Act provides mechanisms to reinforce the requirements of collective enforcement, including the prohibition on the taking of legal action against a company in administration without leave of the Court (s 440D) and restrictions upon the enforcement of a charge against property of the company (s 440B). There is no reason to suppose Parliament intended that unsecured creditors should have an advantage not afforded even to secured creditors.

    Upon winding up, s 500 effectively establishes a moratorium upon proceedings or enforcement against a company in winding up. Section 500(1) voids any “attachment, sequestration, distress or execution put in force against the property of the company”. Distress is usually associated with a landlord's right to enforce payments of arrears of rent by seizing and selling the goods of the tenant. It appears then that “distress” is a reference to self-help against personal property, usually undertaken by a landlord. Given that s 500 precludes the exercising of enforcement against all forms of property, even in circumstances where a creditor has the benefit of a judgment regularly entered, the use of the term “distress” in this context evidences an intention to preclude self-help against the property of a company.

    Further, s 500(2) suspended each Respondent’s right to bring proceedings for damages or otherwise seek a declaration that a Hastie Entity was liable in damages for non-performance of the contract. Absent establishment of such a liability owing from the Hastie Entity, no Respondent obtained a legally valid right to refuse to pay the amount shown in the debtor’s ledger as owing to that Hastie Entity, on the basis that the Respondent was owed damages by the Hastie Entity. The course prescribed by the Act is that each Respondent submit a proof of debt and, in the event of a dispute about the proof, appeal from any decision of the liquidator.

173    I again note here that the course prescribed by the Act for the lodging of proofs of debt is a voluntary mechanism for creditors to satisfy their claims in lieu of the ability to bring proceedings barred by s 500 against a company in liquidation. The Respondents do not need to bring a proceeding or lodge a proof of debt in order to assert a right to refuse to pay an amount claimed by the Hastie Entities. As the Hastie Entities are the parties seeking to be paid debts due to them, it is ultimately contingent on them (or their Liquidator) to bring a proceeding against any Respondents in a court of law to compel payment of those debts. The Act does not preclude this, and in fact s 477(2)(a) explicitly empowers liquidators to bring any legal proceeding in the name and on behalf of the company (which power has been utilised by the Liquidator in these very proceedings).

174    The Applicants’ submissions as to the procedural moratoria under the Act continue as follows:

    The Applicants refer to the dicta of Lord Sumption in Re Lehman Brothers International (Europe) (in administration) (No 4) [2018] AC 465 at [197]:

The purpose of the procedural moratorium was to allow the insolvent’s assets to be realised and distributed to his creditors in proportion to their justified claims. [Applicant’s emphasis]

    Likewise, they say, winding up denied the Respondents a proper legal basis to assert “ownership” of the proceeds drawn on the guarantees, as the proceeds were for a dedicated purpose (being payment of damages) which was proscribed: see ss 440D, 471B and 500(2) in respect of the staying of proceedings following voluntary administrations, winding up in insolvency or by the court, and voluntary winding up respectively.

    The Respondents have since the Appointment Date asserted an entitlement to have recourse to funds of the Hastie Entities which is contrary to the principle of collective enforcement in the interests of all creditors. The Respondents claim to be able to set off their contractual claims as unsecured creditors by having recourse to property under their control in the form of bank guarantees and receivables. To the extent that the Respondents rely upon having drawn the guarantee proceeds after the Appointment Date, they are in the same position as a debtor of a bankrupt who after the bankruptcy buys up liabilities of the bankrupt for the purpose of setting them off against his own indebtedness: see Day & Dent Constructions Pty Ltd (in liq) v North Australian Properties Pty Ltd (1982) 150 CLR 85 (Day & Dent) at 95 per Gibbs CJ.

175    The Applicants’ reliance on the procedural moratorium under s 500 as a predicate for its overarching proposition – that the Act prohibits creditors from asserting legal or proprietary rights that are otherwise for the purpose of satisfying its damages claims against an insolvent company – is misguided. The Act certainly bars proceedings being brought against the company or in respect of the company’s property, but it does not prohibit the exercise of other rights whose substantive purpose may be to satisfy the creditor’s claims against an insolvent company. While it is true that the Respondents drew down on the bank guarantees after the Appointment Date, that exercise of rights was as against the issuing bank party to the bank guarantee, not the insolvent company. The Respondents’ drawdown on the bank guarantees is therefore not analogous to buying up the liabilities of a bankrupt in order to set them off against the Respondents’ own indebtedness. First, it is the issuing banks to whom the Hastie Entities have had their liabilities increased by virtue of the bank guarantee facilities they agreed to enter into. Secondly, as will be explained in more detail in my consideration of the Receivables Case, the Respondents’ claims against the Hastie Entities that they assert are able to be set-off automatically against the Hastie Entities’ debt claims were not purchased from any other party and existed in the hands of the Respondents as contingent claims under the relevant subcontracts prior to the Appointment Date.

176    Strictly speaking, if the Applicants are concerned that the increase of their liabilities are voidable because they occurred after the Appointment Date, their suit should be as against the issuing banks that in fact made claims against the Hastie Entities after the Appointment Date following the Respondents’ bank guarantee drawdowns. The issuing banks are not parties to these proceedings and the Applicants have made no claims as against them. This may be because the banks are secured creditors and because their claims as against the Hastie Entities after the Appointment Date, properly understood, would be contingent claims (the circumstances giving rise to which occurred before the Appointment Date) that crystallised after the Appointment Date following the Respondents’ drawdowns on the bank guarantees. On that basis, their claims would be within s 553 of the Act so that they would be admissible to proof in the winding up of the relevant Hastie Entity. However, it is not necessary or appropriate for me to make any findings in this regard in these proceedings.

177    The Applicants’ submissions continued as follows, now in relation to Part 5.6 of the Act as a whole.

    Part 5.6 provides for the accounting in respect of creditors’ claims to be undertaken by the liquidator of the company in winding up, not a creditor: see, eg ss 506(1)(e), 553C, 553D, 554, 554A, 555, 556. Section 554 refers to the computing of the amount of a debt or claim. In particular, ss 555 and 556 state that debts and claims to creditors “must be paid”. The reference to the act of payment as an obligation plainly contemplates that the liquidator will be paying the creditors, rather than the creditors paying themselves.

    To read Div 6 of Part 5.6 of the Act in this way is consistent with the sections of the Act that direct the liquidator take control of the property, even though it may ultimately be found to belong to other persons: see s  474(1) of the Act, which directs the liquidator to take control of “all the property which is, or which appears to be, property of the company”. In turn, the ability of a liquidator to distribute the property of the company by paying claims and debts in accordance with ss 501 and 555 depends upon an accurate accounting of the property of the company, including its assets and liabilities. It should not be supposed that the Act envisages that the liquidator could perform his or her duty by getting in and distributing only some of the property.

    A common feature of the claims made by the Respondents in these proceedings is the assertion of an entitlement to have recourse to certain funds of the Hastie Entities (in the form of trade receivables and bank guarantees) entirely outside of the Act’s provisions. That is, they claim to be able to set off their contractual claims as unsecured creditors by engaging in self-help in relation to property under their control in the form of bank guarantees and receivables.

    The Respondents’ self-help is prohibited by the Act and is unfair to other creditors in that the Respondents as unsecured creditors:

(a)    avoid having to prove in the winding up, notwithstanding that their claims are purely contractual and no different in type or priority to the claims of other unsecured creditors;

(b)    recover the full value of their claims, thereby avoiding the operation of the pari passu principle to which other creditors are subject; and

(c)    avoid the requirements of the Act in relation to set-off, in particular s 553C and its requirement of mutuality.

    There is no principled basis for distinguishing between the Respondents as unsecured creditors asserting contractual entitlements against the Hastie Entities and other unsecured creditors. These assertions by the Respondents do not as a matter of law legitimise the self-help which has enabled them to hold the funds that constitute the receivables and bank guarantees.

178    I have already addressed the Applicants’ characterisation of the Respondents’ exercise of its rights as “self-help”. In answer to the supposed lack of any principled basis to distinguish between the Respondents and other unsecured creditors:

(a)    first, the Respondents do not seek to claim against the Hastie Entities as unsecured creditors at all, and strictly speaking, there is no provision of the Act that falls for consideration that requires the rights of the Respondents to be determined according to the binary definitions of “secured creditor” and “unsecured creditor”; and

(b)    secondly, as I will explain later in my consideration of the Bank Guarantee Case, the practical effect of the bank guarantee arrangements – whereby the Respondents’ claims against the Hastie Entities are satisfied by the banks, whose resultant claims against the Hastie Entities in turn are then to be satisfied by the Hastie Entities – is brought about by the arms-length agreements of the Hastie Entities themselves with the Respondents and with the banks. It should be added that the Respondents’ call on and drawdown of the bank guarantees against the banks are not in the nature of an unfair preference or other voidable transaction with the Hastie Entities (and such allegations have not been made against the Respondents);

(c)    thirdly, it is true that the practical effect of the arrangements are that the Respondents are relieved of the necessity to bring their claims as unsecured creditors against the insolvent Hastie Entities, and in the eyes of the Hastie Entities, their claims appear to have been “converted” to claims in the hands of the banks as secured creditors. However, it is important to recognise that the banks’ rights to repayment are rights held in their own capacities pursuant to their facility agreements with the Hastie Entities, and not based on any principle of subrogation to the Respondents’ rights;

(d)    fourthly, the facility agreements provided to the Hastie Entities the benefit of being able to contract with counterparties who, without the security provided by a bank guarantee (or a retention amount), may have been otherwise unwilling to enter into business concerning large-scale projects with them. The Hastie Entities entered into these facility agreements on the basis that the banks were secured creditors and would be able to satisfy their claims out of secured property in priority to all other unsecured creditors.

179    These considerations ought to be kept in mind when considering the Applicants’ invocation of the pari passu principle, and they are relevant to the question of whether, if the Respondents were entitled to retain the proceeds of the bank guarantees, the Act would be truly giving effect to the equitable substance of the pari passu principle. Nevertheless, as I will discuss later in my reasons as to the Bank Guarantee Case, it is important to begin with the statutory text rather than a public policy or general principle, however central a tenet it is in insolvency law.

180    Overall, the combined effect of the Applicants’ characterisation of the statutory scheme implemented by Chapter 5 of the Act – which underpins both its Receivables Case and Bank Guarantee Case – is that in the situation of an insolvency, the Act requires creditors’ claims against the company to be determined, calculated or dealt with by the liquidator once appointed. For a creditor to decide for itself its rights and entitlements as to the receivables owed to the company or the application of set-off (the Receivables Case) or to pursue a form of “self-help” by drawing down on funds available to it under a bank guarantee (the Bank Guarantee Case), and then to decline to submit to the liquidators’ power to determine the value of debts owed by or claims against the insolvent company, is, the Applicants say, to circumvent and contravene the statutory scheme under the Act.

181    Apart from the fact that they are both underpinned by the Applicants’ interpretation of the overall statutory scheme implemented by Chapter 5 of the Act, it is worth noting briefly how the Applicants’ Receivables Case and Bank Guarantee Case interact. The Receivables Case is based on the Hastie Entities’ contractual claims against the Respondents and the “receivables” they claim to be debts owed to them under the contract. The Respondents’ defence to those claims is to assert their own contractual claims against the Hastie Entities which when set-off against the Hastie Entities’ claims are said to result in a debt owed to each of the Respondents. It was in anticipation of this debt arising that the Respondents called on the bank guarantees and drew down the proceeds. Having done so, each of the Respondents were then in a position where any claims they had against the Hastie Entities could be satisfied out of the bank guarantee proceeds, with any surplus to be returned to those Hastie Entities. Accordingly, because of the bank guarantee draw downs, the Respondents were in a position where they did not seek to claim money directly from the insolvent Hastie Entities or to prove in their liquidations once they were wound up. In possession of the bank guarantee proceeds, each Respondent sought to determine themselves the proper value of their claims and the Hastie Entities’ claims and to determine themselves the application of any set-off.

182    In this way, the Respondents’ claims against the Hastie Entities (which are said to set-off fully against the Hastie Entities’ receivable claims that are the premise of the Receivables Case) gave rise to the Respondents’ drawdown of the bank guarantees (the legality of which is impugned in the Bank Guarantee Case), which in turn, created the conditions for the Respondents to decline to prove in the liquidations of the Hastie Entities and to determine for themselves the proper application of set-off between their claims and the Hastie Entities’ claims (the legality of which is impugned in the Receivables Case). It can be seen therefore that the Receivables Case and the Bank Guarantee Case affect the other, and the events giving rise to each are part of a singular dispute as between the respective Applicants and Respondents taking place in the context of the statutory scheme for insolvent companies implemented by the Act. While for convenience these reasons set out and consider the Receivables Case and Bank Guarantee Case separately, it is important to consider the interaction of the issues raised by the separate “cases” in the context of a cohesive dispute between the parties in the litigation that is to be determined in the context of the statutory scheme referred to.

183    The Applicants’ submissions as to the statutory scheme as to set-off in insolvency are further set out in the next section regarding the Receivables Case. Their submissions as to the application of the statutory scheme where a creditor seeks to draw down on a bank guarantee in relation to the insolvent company are set out in the section regarding the Bank Guarantee Case.

THE RECEIVABLES CASE

184    It is to be recalled that the Receivables Case involves the allegation that each Respondent owes to a Hastie Entity a debt for work performed under the project subcontract (the “receivable”). This allegation is resisted by the most of the Respondents: first on the basis that no actual receivable or debt properly arises on the subcontract, and second, as matter of principle, because any receivable or debt ought to be set-off against the amount owed by the Hastie Entity to the respective Respondent under the subcontract for the loss or damage incurred by the Respondent because of the Hastie Entity’s default upon insolvency (and resultant inability to complete performance of the work under the subcontract).

185    For each project, whether the subcontract gave rise to a debt owing to the Hastie Entity depends on the construction of the relevant subcontract in respect of each project (Issue 1 in the Common Issues). However, the set-off issues (Issues 4 to 7 in the Common Issues) are to be determined by the statutory scheme as to set-off in insolvency provided under s 553C of the Act, which applies to each of the projects in issue (although some of the Respondents, such as Multiplex, submit that under their subcontracts, contractual set-off applies in the first instance so that s 553C does not fall to be applied).

186    Before I turn to the Applicants’ submissions on the set-off issues and my consideration of those issues, I will set out the relevant terms of the subcontracts in relation to the Receivables Case.

The relevant terms of the subcontracts

187    Having assessed each of the subcontracts, I am of the view that the specific terms of the subcontracts involving the Respondents are generally similar, but where they are relevantly different so as to affect the determination of the issues of principle in dispute in the Receivables Case, I refer to such differences in my following reasons. It is convenient therefore generally to refer to the terms of the subcontracts involving the First Respondent, Multiplex.

188    Because the purpose of this liability trial is not to determine the validity of all receivables claims or to quantify any of those claims, it is not necessary to set out every contractual detail. It is sufficient to set out the terms only to the extent necessary to understand the nature and context of the Applicants’ receivables claims, and to comment on the validity of a particular receivables claim and to understand the Respondents’ claims for contractual damages in relation to which they assert set-off.

189    Although the Applicants and Multiplex did not agree on a representative subcontract for the purposes of their dispute, it is not in dispute that the terms of each subcontract were consistent in relation to payment claims and in relation to termination and default. In addition, each subcontract was based on an industry standard form contract and so the numbering of the clauses as between projects is generally consistent. For the sake of identifying a particular subcontract, I shall refer to the representative subcontract identified by the Applicants in their closing submissions, being the design and construct contract for “Project B – Stockland Shellharbour” (‘Stockland Shellharbour Subcontract’) entered into on 14 January 2011 between Multiplex and the ‘Subcontractor’ (being the relevant Hastie Entity in respect of that subcontract).

190    Clause 42 is entitled “Payments”, and clause 42.1 is entitled “Payment Claims, Payment Schedules, Calculations and Time for Payment”. Under that subclause, a progress payment regime is established whereby the Subcontractor makes “payment claims” at a certain time after completing works, to which the Respondent (in this case, Multiplex) responds with a “payment schedule” assessing each claim and stating the amounts payable in its opinion, by which schedule such amounts are accepted by Multiplex as debts due and payable. It relevantly provides as follows:

42.1     Payment Claims, Payment Schedules, Calculations and Time for Payment

At the times for payment claims or upon completion of the stages of the work under the Subcontract stated in Annexure Part A and within the time prescribed by Clause 42.6, the Subcontractor shall deliver to Multiplex claims for payment in the form at Annexure Part Q supported by evidence of the amount due to the Subcontractor and such information as Multiplex may reasonably require, including all of the information in Clause 42.1A.

Claims for payment shall be for the value of work carried out, or to be carried out, by the Subcontractor in the performance of the Subcontract to the last day of the relevant month…

Within 14 days of receipt of a claim for payment (including all required supporting evidence and information) that complies with this Clause 42.1, Multiplex:

(a)    shall acting reasonably, assess the claim; and

(b)    may issue to the Subcontractor a payment schedule staling the amount of the payment which, in Multiplex's opinion, is lo be made by Multiplex to the Subcontractor or by the Subcontractor to Multiplex.

Multiplex shall set out in any payment schedule issued pursuant to this Clause 42 the calculations employed to arrive at the amount and, if the amount is more or less than the amount claimed by the Subcontractor, the reasons for the difference and for withholding any payment. Multiplex shall also set out, as applicable, in any payment schedule issued pursuant to Clause 42, the allowances made for –

(c)    the value of work carried out by the Subcontractor in the performance of the Subcontract to last day of the relevant month;

(d)    amounts due (or which may become due) from the Subcontractor to Multiplex;

(e)    amounts paid previously under the Subcontract;

(f)     amounts previously deducted for retention moneys pursuant to Annexure Part A; and

(g)     retention moneys to be deducted pursuant to Annexure Part A,

arising out of the Subcontract resulting in the balance to the Subcontractor or Multiplex, as the case may be.

Where an amount is shown as being due for payment to the Subcontractor by Multiplex in a payment schedule or otherwise assessed by Multiplex as being due for payment to the Subcontractor by Multiplex, Multiplex shall pay the Subcontractor the relevant amount by the latest of:

(h)     the date provided in Item 35A of Annexure Part A;

(i)     28 days after receipt by Multiplex of all required evidence and information supporting the relevant payment claim; and

(j)     the date on which the Subcontractor provides security in accordance with Clause 5.2.

If a payment schedule states that payment shall be made by the Subcontractor to Multiplex, that amount shall be a debt due from the Subcontractor to Multiplex and the Subcontractor shall pay to Multiplex an amount not less than the amount shown in such certificate within 5 days of Multiplex's issue of the certificate.

A payment made pursuant to this Clause 42.1 shall not prejudice the right of either party to dispute under Clause 47 whether the amount so paid is the amount properly due and payable and on determination (whether under Clause 47 or as otherwise agreed) of the amount so properly due and payable, Multiplex or the Subcontractor, as the case may be, shall be liable to pay the difference between the amount of such payment and the amount so properly due and payable.

If the Subcontractor fails to make a claim for payment under this Clause 42.1, Multiplex may nevertheless issue a payment schedule and Multiplex or the Subcontractor, as the case may be, shall pay the amount shown in that payment schedule.

Payment of moneys shall not be evidence of the value of work or an admission of liability or evidence that work has been executed satisfactorily but shall be a payment on account only.

191    I also set out clause 42.1A, which is referred to above:

42.1A     Requirements for Payment Claims

The Subcontractor must include all of the following information in its payment claims under Clause 42.1:

(a)     such information as Multiplex reasonably requires in respect of the work the subject of the progress claim;

(b)     a certificate, in the appropriate form set out in Annexure Part F, from each of the Subcontractor's Consultants and the Subcontractor;

(c)     a statutory declaration in the form al Annexure Part R;

(d)     if the claim for payment includes goods, product, plant or materials, the warranties or guarantees required under Clause 30. 7 in respect of those goods, product, plant or materials; and

(e)     evidence, in a form reasonably acceptable to Multiplex, that the Subcontractor has effected and maintained the policies of insurance referred to in Clause 18.

192    Clause 42.5 sets out the regime for the final account of all payment claims, as follows:

42.5     Deed of Release

Notwithstanding Clauses 42. 1 and 42.6, the Subcontractor shall submit a final account of all Claims for payment in respect of the Subcontract Works:

(a)     when the value of the Subcontract Works reaches 95% of the Subcontract Sum;

(b)     upon request by Multiplex; and/or

(c)     prior to the last progress claim,

as directed by Multiplex.

On agreement by Multiplex of the amount payable to the Subcontractor, Multiplex shall deliver to the Subcontractor a Deed of Release in the form at Annexure Part T completed with the appropriate details.

Upon receipt of the Deed of Release, the Subcontractor shall duly execute it and promptly return it to Multiplex.

If, within 7 days of Multiplex providing the Deed of Release to the Subcontractor, the Subcontractor fails to duly execute and return the Deed of Release to Multiplex, then:

(d)     the details contained in the Deed of Release shall be final and binding on the Subcontractor; and

(e)     the Subcontractor shall not be entitled to make, and waives its right lo, any Claim against Multiplex and Multiplex shall be fully discharged and released from all Claims which the Subcontractor has or might have had or might assert in relation to the work under the Subcontract.

Within 35 days of receipt of a written request from the Subcontractor, which request may only be made with a payment claim under Clause 42.1 following the later of:

(f)     receipt by Multiplex of the executed Deed of Release; and

(g)     the date which is 7 days after Multiplex provided the Deed of Release to the Subcontractor,

Multiplex shall pay the Subcontractor the amount to which it is entitled in full and final settlement of any Claims which the Subcontractor may have against Multiplex.

193    Clause 42.8 provides for a contractual set-off regime for the benefit of Multiplex:

42.8     Set Offs by Multiplex

(a)     Multiplex may set-off or deduct from:

(i)     any amounts due to the Subcontractor, including any amounts in any payment schedule issued by Multiplex; or

(ii)     the amount available to Multiplex if it exercises its rights under security,

any moneys due, or which may become due, from the Subcontractor to Multiplex (whether under this Subcontract or otherwise).

(b)     Even if an amount owed by the Subcontractor to Multiplex under the Subcontract has not been included in a payment schedule by Multiplex under this Subcontract, Multiplex may separately recover the debt from the Subcontractor.

194    Clause 42.9 is titled ‘Security of Payment Act’. None of the parties relied on this clause, which concerns secondary subcontractors retained by the Subcontractor, so it is not necessary to set out or consider here.

195    I shall now set out parts of clause 47, entitled “Dispute Resolution”, also referred to above within the progress payment regime at clause 42.1, which establishes a dispute resolution mechanism for disputes generally (including disputes in relation to clause 42.1):

47.1     Notice of Dispute

If a dispute or difference (hereafter called a 'dispute') between Multiplex and the Subcontractor arises in connection with the Subcontract or the subject matter thereof, including a dispute concerning –

(a)    a direction given by Multiplex; or

(b)    a Claim,

then either party shall deliver by hand or send by certified mail to the other party a notice of dispute in writing adequately identifying and providing details of the dispute.

Notwithstanding the existence of a dispute, Multiplex and the Subcontractor shall continue to perform the Subcontract and, subject to Clause 44, the Subcontractor shall continue with the work under the Subcontract and Multiplex and the Subcontractor shall continue to comply with Clause 42.1.

…

47.6     Summary Relief

Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Subcontract or to seek interlocutory injunctive in respect of a dispute under Clause 47 or any matter arising under the Subcontract.

196    Finally, I shall set out Clause 44, which is entitled “Default or Insolvency”. Clauses 44.2 to 44.6 deal with the procedure where there is a default by the Subcontractor (the Hastie Entity). Those clauses relevantly provide as follows:

44.2     Default by the Subcontractor

If the Subcontractor commits a breach of this Subcontract, Multiplex may give the Subcontractor a written notice to show cause.

…

44.4     Rights of Multiplex

If by the lime specified in a notice given under Clause 44.2, the Subcontractor fails to show cause why Multiplex should not exercise a right referred to in this Clause 44.4, Multiplex may by notice in writing to the Subcontractor –

(a)     take out of the hands of the Subcontractor the whole or part of the work under the Subcontract remaining to be completed; or

(b)     terminate the Subcontract.

Upon giving a notice under Clause 44.2, Multiplex may suspend payments to the Subcontractor until the earlier of –

(i)     the date upon which the Subcontractor shows cause;

(ii)     the date upon which Multiplex takes action under Clause 44.4(a) or (b); or

(iii)     the date which is 7 days after the last day for showing cause in the notice under Clause 44.2.

If Multiplex exercises the right under Clause 44.4(a), the Subcontractor shall not be entitled to any further payment in respect of the work taken out of the hands of the Subcontractor unless a payment becomes due to the Subcontractor under Clause 44.6.

…

44.6     Adjustment on Completion of the Work Taken Out of the Hands of the Subcontractor

When work taken out of the hands of the Subcontractor under Clause 44.4(a) is completed, Multiplex shall ascertain the Losses suffered or incurred by it in completing the work and shall issue a certificate pursuant to this Clause 44.6 t0 the Subcontractor certifying –

(a)     the amount of those Losses, and setting out the calculations employed to arrive at those Losses;

(b)     the amount which would otherwise have been paid to the Subcontractor if the work had been completed by the Subcontractor; and