Australia: Vero Insurance Limited v Kassem [2010] NSWSC 838

Last Updated: 20 August 2010
Article by James Collier

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 as follows.

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 $808,621.70.

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.

Insurer's claim

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 [2003] NSWSC 927; (2003) 47 ACSR 537 at [68] it was said that:

"... 'creditors', 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 [2006] NSWSC 560; (2006) 58 ACSR 22.

The decision

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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