Vero attacked the deed on various grounds. The Supreme Court
ultimately held the deed was valid. Importantly for warranty
insurers though, the Court upheld Vero's submission that it was
a creditor entitled to attend and vote at the second meeting of
creditors at which the deed had been approved. Although the Court
addressed a host of other submissions, in this case note we propose
only to focus on the Court's consideration of whether Vero had
standing to attend and vote at the meeting of creditors.
Vero submitted that it was a creditor of Ungul because Vero had
written home warranty insurance under the Home Building Act
1989 (NSW) in relation to the construction of the units at
Blue Bay and paid a claim under the insurance. The background was
Ungul was the developer of the property in Blue Bay. The builder
was Lusted. Upon the registration of the strata plan, the home
units vested in Ungul and the common property vested in the newly
constituted owners corporation. The building was affected by water
penetration said to be attributable to faulty workmanship by
Lusted. Under the Building Act, Ungul was liable to the
owners corporation for the same warranties as Lusted. In due
course, the owners corporation and the individual lot owners sued
Vero as insurer. Those proceedings were compromised on the basis of
payments by Vero to the owners corporation and the lot owners of
Proceedings were later commenced against Ungul. The plaintiffs
named in those proceedings were the owners corporation and the lot
owners. They claimed, as against Ungul, breach of the statutory
warranties. The owners corporation and the lot owners were,
however, suing at the instigation of Vero which, having made
payments to the owners corporation and the lot owners under the
certificates of insurance, considered itself to be subrogated to
their rights against Ungul.
Vero's claim to be a creditor of Ungul was thus, in effect,
based on a combination of a right at law on the part of the owners
corporation and the lot owners to sue Ungul for breach of statutory
warranties, and a right of Vero in equity to stand in the shoes of
the owners corporation and the lot owners in respect of recovery as
against Ungul. The Court considered that the claim of Vero against
Ungul could therefore be described, in a general sense, as an
unliquidated equitable claim. It was unliquidated because it was a
claim for damages for breach of warranty. It was equitable because
Vero could not, at law, sue in its own name and was compelled to
sue in the names of the owners corporation and the lot owners.
The Court then noted that in Selim v McGrath 
NSWSC 927; (2003) 47 ACSR 537 at  it was said that:
for the purposes of a s439A meeting of creditors in a voluntary
administration are all persons who have, as against the company
concerned, 'debts' or 'claims' provable in a
winding up. The boundaries are therefore those set by s553(1) which
refers to 'all debts payable by, and all claims against, the
company (present or future, certain or contingent, ascertained or
sounding only in damages) ..."
The Court then noted that, consistently with this, it has been
held that a beneficial holder of convertible notes (that is, a
person on whose behalf a registered holder holds the notes) is an
equitable creditor to whom a prospective debt is owed, the
prospective element coming from the circumstances that a right
actually to be paid does not arise until some relevant event of
default occurs: Australian Beverage Distributors Pty Limited v
Evans & Tate Premium Wines Pty Limited  NSWSC 560;
(2006) 58 ACSR 22.
The Court held that, in the present case, there was clearly a
claim, being the claim pursued in the proceedings commenced against
Ungul in the names of the owners corporation and the unit owners.
It had an element of prospectivity to it in that an adjudication
favourable to the success of the claim has not been made, and Vero
was beneficially entitled to it because of its subrogation rights.
That was sufficient, in the Court's view, to make Vero a
creditor of Ungul.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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